Indian Tax Solution

Cabinet nod for Budget overhaul: Why Modi govt wouldnot want to meddle with the anatomy of Railway

The decision of the government to announce the Union Budget early (probably the first day of February every year) and merge the Railway Budget with the general budget has been welcomed by most economists. It's big break from the past.

It was in 1924, during British raj, that the Railways began to have a separate budget. The British attached tremendous importance to the Railways as it was crucial to move their goods and forces. The practice continued for long also because of the substantial size of the Railways budget in relation to the total budget expenditure. But that scenario has changed.

The political and economic rationale that warranted a separate Railway budget during the British raj has lost its relevance long back and it was only a matter of time before we revisited this practice and brought in reforms in the way budget is presented.

Secondly, the day for the general budget presentation has been the last day in February every year since 1948-49, after Independence. Advancing it will help to take decisions early and follow the process faster to get on to the implementation stage.

The government also wants to do away with the distinction of plan and non-plan expenditure, which too is a logical move given that Planning Commission itself is non-existent now and Five Year Plans are being replaced. Thus, prima facie, all the three changes ---merging the railway and general budget, plan/non-plan expenditures and advancing the general budget presentation date--are small but significant reforms steps which may not have major tangible impacts on any stakeholder, but will give more clarity on tax proposals and expenditure.

This is because the Finance Bill will be approved in the first half of the budget session itself, not towards the end after the recess as is the case now. This will mean the government and the private sector can plan the new fiscal year a bit early and not in the middle of the fiscal year. Presently, the Finance Bill is approved towards the end of the budget session. The proposed changes in presentation will ease the time lag in the budget process and subsequent decision-making by government departments and the private sector.

It is wrong, however, to term these as reforms that can do wonders in the economy. "Beyond the fact that general budget is going to be bigger (post Railway budget merger) and the entire process is going to start early with the budget advancing, there aren't much changes expected due to the budget overhaul in the economy," said Devendra Pant, chief economist at India Ratings and Research.

As Union Finance Minister Arun Jaitley said in the presser post the cabinet meeting on Wednesday, the government will seek GDP data for budget preparation from the Central Statistical Office (CSO) in January itself, instead of 7 February, for Budget preparation. Early presentation of Budget would mean that the entire exercise is over by March 31, and expenditure as well as tax proposals come into effect right from the beginning of the new fiscal, thereby ensuring better implementation.

Railways' autonomy under threat?
Let's look at the Railways budget merger specifically. The brighter side of the change is that there will now be presentation of a single Appropriation Bill, including the estimates of Ministry of Railways, thereby saving precious time of Parliament by not having to hold a separate consideration and passing of two Appropriation Bills, Jaitley said.

But it also raises obvious questions.

The first is: Will the Railways, which enjoyed a special autonomy and financial independence compared with other ministries for nearly a century, continue to have functional autonomy? Or will it end up just as another department of the government?

Former railway minister Nitish Kumar and former finance minister, Yashwant Sinha have flagged this issue.

Look at the numbers. In terms of size, the Railways is the third biggest budget (Rs 1.71 lakh crore in 2016-17) after defence (Rs 2.49 lakh crore) and infrastructure (Rs 2.21 lakh crore). The carrier, which runs around 11,000 trains everyday, of which 7,000 are passenger trains, has pegged a capital expenditure of Rs 1.21 lakh crore in 2016-17, most of which is planned through joint ventures with states and PPP model. For years, Railways has its own independent planning and strategy.

The public carrier's operations are too critical and sensitive (both passenger and freight movements) for the government to mess with. So far, the Railways had financial autonomy on account of its separate budget. Can the government afford to kill its operational autonomy in the first place? It will be too risky for the Modi-government to do and it wouldn't want to interfere, too.

The signal from Jaitley's presser too was that the government wouldn't want to meddle with the Railway's functions.

Consider these comments from Jaitley:

One, the government doesn't intend to supersede the functional autonomy of the Railways but will only present its accounts in the budget, the FM said.

Two, even on the issue of fare and freight rates too, Jaitley said, the decisions will continue to be taken by the Railways.

Three, the government has also promised to hold a separate discussion on Railways expenditure every year.

Four, Railways fund its expenses (employee salaries, pensions) from its revenues and also draws government subsidies. All these will continue to be the same except that accounting will be different.

If one takes these comments at face value, the Railways will not end up as just another department of the government at the mercy of the Finance Ministry.

The bottomline is this: The fear that the country's largest public carrier will lose its autonomy post the budget merger is unlikely to come true. The government cannot afford to experiment with the Railways' functions.

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