Railway Budget merger to chug in efficiency

Major decisions taken by the Union Cabinet on Wednesday to revamp of the general Budget will bring in operational efficiency along with throwing up challenges of working out accurate advance estimates, not losing importance of Railways to economy and others, said economists.

The Cabinet took a decision to advance the presentation date of general Budget, merge it with the Railway Budget and do away with segregation of spending as plan and non-plan to put them under the revenue and capital expenditure.

Richa Gupta, senior director, Deloitte, said the main aim of the government in making all the changes in the Budget was operational efficiency. She said their decision to not categorise expenditure as Plan and non-Plan was expected after the Planning Commission was replaced with Niti Aayog.

"The objective of the government is to bring operational efficiency whether it brings or not that has to be seen. Doing way with Plan and non-Plan heads under expenditure is in keeping with the philosophy that we don't have a Planning Commission. They are saying that the five-year Plan era is no longer there and are trying to present the Budget focusing on the nature of the expenditure," she said.

Gupta said the government was trying to follow accounting practices of corporates.

According to her, advancement Budget date casts a shadow on the accuracy of the provisional data used for the presentation; "even when the Budget was presented on February 28, the relevant fiscal year estimate were always advance estimates. If they advance the date further, for that particular year a lot of data would be advance data. We have to see how they will take care that the provisional data they use presents the picture for the year fairly accurately".

Gupta said the government would have to take care the merger of Railway Budget with general Budget does not undermine Railways's "significance or focus" in its annual budgeting exercise.

Finance minister Arun Jaitley, while talking to the press on Wednesday, said that the relevance of presenting a separate Railway Budget was lost over years with its size getting smaller compared with general Budget. He said even budgetary allocations for defence and highways were bigger than railways today. The first Railway Budget was presented in 1924.

"The government will also take initiatives to ensure that there is a separate discussion on railway expenditure each year so that there is an element of detailed parliamentary scrutiny and accountability," Jaitley told the media after the Cabinet decision.

He said the Railways will retain its functional autonomy on all commercial aspects like fares, tariffs and other such matters.

Shaktikanta Das, economic affairs secretary in the finance ministry, said the amalgamation of the two Budgets would help the government in taking a "comprehensive consolidated view of the overall fiscal situation".

"There is no constitutional or legal requirement for having a separate Railway Budget. It was only by way of convention. So, we are making a departure from it," he said.

Unifying the two Budgets will also save railways Rs 4,100 crore that it pays to the government as dividend. Its current total dividend payout is Rs 10,000 crore. The rate of dividend is set by Railway Convention Committee, which has been disbanded.

"To that extent (of Rs 4,100 crore), additional resources are now available for the railways to spend on capital expenditure," said the bureaucrat.

Jaitley explained the advancing of Budget date will help in completing the processes of getting all the legislative clearances for the annual spending and tax proposals by fiscal end – March 31.

Till now, the Budget would get presented on the last day of February and Parliament would approve it two parts in May. With the onset of monsoon in June, most spending would get pushed to October.

Also, with the unification of the Railway and general Budgets, now only one Appropriation Bill would be cleared instead of two. This was would also save some time.

D K Srivastava, chief policy advisor, EY India, said the advancement of Budget would enable the government to release its capital expenditure before monsoons and also help improve the quality of revised Budget estimates.

"Currently the infrastructure spending (government's key spending) usually gets delayed as the rainy season starts soon after the budget approval and thereby the infrastructure spending gets delayed by 4-5 months, as rain hampers most of the infra projects. With the advancement of Budget, the funds may get released as early as April which may provide the government with least two-and-a-half to three months to spend on infrastructure, before the commencement of the rainy season. This may also carry another advantage of boosting economic growth in the long run," he said.

With an earlier date for Budget, the government officials said the government will begin consultation with industry and other stakeholders early next month and would come out with GDP estimate by January 7 instead of February 7.