Making sense of the budget
Sukanya Bose
Come last week of February and all eyes are turned towards the budget. Often, interest in the budget is limited to personal gains or losses consequent upon the budgetary announcements. Post-budget certain commodities will be taxed higher and therefore will be more expensive and others may become less expensive. Alterations in income tax rates and slabs are closely watched as they again directly affect our incomes. Beyond that the budget is a bundle of numbers for most!
From the social science perspective, the approach to government budget needs to be somewhat wider. The presentation of the budget in Parliament and the discussions and analysis are an essential part of a larger process/system to uphold the democratic character of the government and ensure transparency and accountability. The core idea is that the government’s budget has to be accountable to the people. Further, it has to uphold the collective aspirations/choices of the people and work towards collective welfare. Let us use this lens to look at the budgetary processes.
I. From preparation to passing of the budget…: parliamentary control
The preparation of the budget starts about six months prior to its presentation in the Parliament. The Ministry of Finance sends a circular to all departments and ministries to prepare detailed estimates of revenues and expenditures. There are prescribed limits on expenditure. This process takes about two months, with the Budget Division of the Ministry of Finance finally consolidating all the information. Meanwhile, consultations are held with representatives from various groups, including industrialists, business houses, investors, bankers, and representatives of financial institutions, farmer groups, exporters, etc. People get a chance to place their demands at such consultations.
Not all views find equal favour with the government though. The maximum influence on policy and its implementation through budgetary allocations and tax sops (concession), etc., are exercised by powerful interest groups also termed as dominant proprietary classes. Writing in the eighties, Pranab Bardhan had identified three dominant proprietary classes in India. The industrial capitalist class, the rich farmers, and the professionals in the public sector played a major role in influencing and designing public policy in India.* For many years the groups representing the interests of traders and industry have successfully demanded and received numerous concessions and exemptions. This process over the years has made the tax laws in India among the most complicated and highly unstable in the world. With far-reaching changes in the economy since the early 1990s, the role of the public sector has diminished substantially, while top private business houses each controlling several lines of business have become a powerful force to reckon with. Further, in a globalized environment, most governments have to keep the interests of finance capital – both domestic and foreign – in mind. It may not be difficult to guess that the cause of the social sector comprising education, health and nutrition, women and child development, food security, rural water supply and sanitation, and employment has never been similarly represented by a dominant class. Neglect of the social sector is a serious challenge; we will return to it in the next section.
The presentation of the budget in the Parliament is a constitutional requirement. The objective is to ensure parliamentary control on the government, and ensure that people’s representatives determine how the country’s finances are being managed. Article 112 of the Indian Constitution makes it mandatory for the government in power to lay before both the houses of Parliament an annual financial statement of the government of India for that year. The annual financial statement is what is called the budget (see union budget: http://indiabudget.nic.in/). It provides the estimated receipts and expenditure of the government for the ensuing financial year starting 1st April. Further, as per the constitutional provision, no tax can be levied or collected except by authority of Parliament. And almost all expenditure heads have to be approved by the parliament. In other words, the government cannot function without the parliament’s approval.
Unlike what we popularly think, presentation and passing of the budget doesn’t happen simultaneously. There is sufficient time set for deliberations between the two. The discussion on the budget happens in two stages in the Lok Sabha. First, there is the general discussion for about 4 to 5 days. Then the parliament takes a recess. The present budget session of the Parliament, February 23, 2016 – May 13, 2016, has a recess from March 17 to April 24. This is when the Standing Committees examine the expenditure proposals or demand for grants of various ministries. As the budget is a voluminous document involving many departments and ministries, departmental standing committees comprising members of the Lok Sabha and Rajya Sabha, from both the ruling party and the opposition, are assigned the task of discussing threadbare the demand for grants. These small groups discuss the nuances of the budget proposals and present their report once the house meets to vote for the demand for grants.
During the voting on demand for grants, MPs can call for ‘cut motions’ which can reduce the grant amount for the respective ministry. The demands for grants which have not been voted on by the last day fixed for the purpose are ‘guillotined’, i.e., they are voted upon together. After voting on demands for grants, an Appropriation Bill is introduced and voted on, which authorizes the government to spend money from the Consolidated Fund (consisting of all revenues, interest earnings and fresh borrowings of the government). The Finance Bill containing the tax proposals of the government is then taken up and passed in the Lok Sabha taking the process to its completion.
Over the years, the procedures related to the government budget have been refined to make the system more meaningful, full-proof and to build in critical review. Earlier there were no Parliamentary Standing Committees. Due to disruptions in Parliament, often no discussion would happen on the demand for grants. So the formation of departmental standing committees was considered. Another crucial change has been the separation of the work of Controller General of Accounts (CGA) who maintains the government’s accounts and the Comptroller and Auditor General of India (CAG), a constitutional body to audit the government’s accounts. This was done to end the conflict of interest between the two functions. You may remember the role of the CAG in bringing to light a number of scams such as the 2-G spectrum auction, where licenses for frequency allocations were given away cheaply causing huge losses to the public exchequer. By scrutinizing and auditing the revenues and expenditures of the government, the CAG provides an important check, which is over and above parliamentary control.
II. People’s participation and the budget
Following its presentation, the analysis of the budget is done by economists and sector experts independently about which we read and hear in the media. This helps demystify the budget for the common people. The implications of the budget become more transparent. For instance, it is through these discussions that people became aware of the proposal to tax Employee Provident Fund withdrawal. People found it unfair that their savings for retirement would draw a tax and petitioned the government. In this particular case, people’s voices and opposition in the Parliament forced the government to rollback the proposal.
Not all demands, however, are that easily met. Especially when it comes to the social sector and basic entitlements, the progress has been uneven and slippery in India. As we know the social sector in India is characterized by low performance in human development indicators and widespread poverty, hunger, and unemployment. The rights based legislations such as Right to Work, Right to Food, Right to Information, and Right to Education have created ground for action. But unless this is supported by budgetary allocation not much will change. In other words, since the budget enables the government to translate its programmes and policies into action, without adequate budgetary provision and effective management of these finances, plans and programmes of the government could remain mere promises. It has become a convention to make major policy announcements in a budget speech. The budget becomes the rallying point to test the “real” intent of the government.
Example 1: RTE: promise versus reality
The Right to education Act, 2010 makes the provision of free and compulsory schooling of a certain quality a justiciable right of children up to 14 years of age. Being a fundamental right, it is fair to expect the government’s commitment to this objective. More so, when the Finance Minister announced the social sector among the nine pillars of the 2016-17 budget and emphasized the need for quality improvement in education.
Sarva Shiksha Abhiyaan (SSA) is the main vehicle for fulfilling the requirements of RTE such as provision of additional schools, classrooms, teachers, other infrastructure as also for quality improvements. The money comes from both the center and states with the center bearing the major part of the expenditure. The center in turn raises a majority of funds for SSA through education cess which is levied on personal and corporate incomes. In the year 2016-17, about Rs.24,000 crores is expected to be raised through education cess alone which will be spent on SSA and other schemes.
Expenditure on SSA has stagnated and even declined in absolute terms. Between 2015-16 and 2016-17 allocation is expected to increase only by 2 percent. After adjusting for inflation, this would amount to negative growth! In certain years, the actual was less than what was budgeted. In 2014-15, actual expenditure on SSA was lower than what was budgeted by more than Rs.3000 crores!
The Center for Governance and Budgetary Accountability, a think tank on public finances (CBGA, 2016) notes, “Given that only 8 percent schools comply with all the infrastructure norms mentioned under RTE Act; 8.3 percent schools have single teacher, it seems that the overall pool of resources by Union Government is inadequate to fulfill the RTE norm in all elementary schools.”
The social sector is replete with instances of under-allocation. People’s participation and engagement with budgetary issues can play a major role in highlighting the discrepancies as the following example on food security shows.
Example 2: Please sir, I want some more
For the effective implementation of the National Food Security Act which entitles people the Right to Food, Rozi Roti Adhikar Abhiyaan (an NGO) met the Delhi government MPs to put in place the requisite resources and mechanisms to operationalize the law properly. Unlike in its poll promises, it was pointed out that the government has not made any provision for providing dal or oil under PDS in the city. More than 10 states provide pulses or oil under PDS. In fact there has been a roll back on transparency measures through discontinuation of the Saturday public audit mechanism and stoppage of SMS alerts that informed people about the date of delivery of ration to their FPS.
Providing eggs, fruits, and milk for children everyday through the mid-day meal scheme and through anganwadis is another demand mentioned in the charter which has been submitted to the Delhi government. The charter also highlights that the Delhi government is yet to implement maternity entitlements across all districts in the capital. “Under Section 4 of the NFSA, all pregnant and lactating women are entitled to Rs. 6,000 as maternity entitlement. The maternity entitlement due under the NFSA is still running as a pilot scheme in only two districts in Delhi even after almost three years of the enactment of the Act,” it said. (The Hindu, March 24, 2016)
To conclude, the budget is a live document. We looked at how it embodies the notion of parliamentary control on the government such that the government is accountable to its people. Further, people have an active role to play to ensure that (a) there is adequate provisioning for basic entitlements of the people; (b) there is transparency vis-à-vis promises and reality; (c) it is a genuine instrument for promoting social and economic welfare.
Ideas for the classroom
(a) In the run up to the budget and after it is presented, various reports appear in the media. Students could be asked to collect and compile news reports from the local newspapers. Once they are familiar, you may give some lead questions for analysis such as: • Map the various expenditures you have read about to the various functions the government.
- Which of the reports refers to the tax side of the budget? Which relate to the to the expenditure side? Segregate.
- Can you broadly identify the priorities of the government for the current budget? To what extent has the budget prioritized the social sector?
- Are there reports of people’s participation and engagement on budgetary issues?
- Why do you think there are various points of views relating to the budget?
- Collect some cartoons related to the budget and interpret them.
(b) For classrooms with access to Internet, the Finance Ministry website hosts the FM’s speech. It also has the Budget at a Glance which children may find interesting (especially the pie-charts on Where Rupee goes to and Where Rupee comes from).
http://indiabudget.nic.in/
The author is a faculty member at the National Institute of Public Finance and Policy, New Delhi. She has contributed to Social Science textbooks published by NCERT and SCERTs. She has published papers on economics as taught in school. She can be reached at sukanya.bose@nipfp.org.in.
