By Sudhakar Panda* in Bhubaneswar, January 26, 2017 : It is a historical decision of the Narendra Modi government to present the Union Budget 2017-18 on February 1st instead of presenting the Budget to the nation on February 28th or on 29th if the year happens to be a leap year. The first decision to change the time of presenting the Budget from 5 PM to 11 AM was taken by the then Finance Minister Yashwant Sinha in 2001 when Atal Bihari Vajpayee was the Prime Minister.

Mr. Sinha then had taken a bold step in departing from the earlier practice of presenting the Union Budget at 5 PM on the last working day of the month of February. This practice inherited from the colonial times could be done away with. Since then the Union Budget is presented every year by the Union Finance Ministers at 11AM in the Lower House of the Parliament. The financial year however remains the same from the 1st of April till the end of March next year.

Why this departure? The compelling reason for the change in presenting the Union Budget on 1st February was not only to have enough time to have discussion on the budget but also to avoid the delay in the effective operationalisation of the budget in allotting funds in time to different Ministries that would help them in streamlining the implementation of their projects.

Delay in allotment of funds to different ministries after the Budget is passed in the Parliament used to hamper the effective implementation of programmes and projects. Timely release of funds can be expected to bring efficiency in the implementation of programmes. This may help the spending agencies to spend the funds received with proper planning and not hurriedly as it tends to happen on many occasions. This can be expected to help the authorities to observe the norms of expenditure and maintain the norm of efficiency in public expenditure.

The first thing that comes to mind when we think of the Budget 2017-18 is that it comes after the shock wave that demonetization of 500 and 1000 rupee notes which constituted more than 85 per cent of currency by value in India created on the night of eighth November, 2017. It is in this context that the Budget 2017-18 has to deal with the following issues;

(i) The “disruptive impact of demonetization” resulting in significantly reducing the size of consumer demand and therefore the volume of commercial transactions and money flows in the market. We may therefore expect measures in the budget that would provide demand stimulus to the economy by way of lowering of direct tax rates at the level of personal and corporate tax.

(ii) We have to bear in mind that the budget comes at a time when apart from consumer spending, real estate and construction business have been adversely affected following demonetization. Business, real estate and construction markets suffered the worst. We look forward to the announcement of specific measures to activate and expand the operations in these markets.

(iii) Since one of the objectives of the government has been to take the economy in the path of digitalization it is to be watched as to how the budget helps the country in moving towards digitalization of the economy

(iv) Because of a slump in the market many young people employed in different sectors of the economy and particularly in the retail and informal market lost their jobs. The immediate problem is to create jobs.

(v) An important fear that has been expressed in many quarters relates to adverse impact of demonetization on India’s growth in that India may not be able to sustain its growth rate and the growth rate in 2017-18 may decline by 2 per cent or so. We may expect the budget to provide a stimulus package not only to reverse the recessionary trends in the economy but also for the growth of the Indian economy.

The Budget however assumes greater significance when we look at the political scenario of India.

(A) The budget will be presented on February 1, 2017 when five states of the Indian Union like the Punjab, Goa, Manipur, UP, Uttarakhand will be facing elections. This constrains the Government that it cannot make any specific announcement of any projects favoring any of these states as that would constitute a violation of the code of conduct. Tax reliefs, freebies and subsidies that may be announced in the budget will be of a general type and for the entire nation.

(B) There will not be any separate presentation of the Railway Budget that has been the practice in India since 1924. Presentation of a separate Railway budget has come to an end with the merger of the Railway Budget with the General Budget in 2017. In one stroke the merits and the demerits of the Railway Budget, if any have been done away with. The Railway Budget used to be region specific in the sense people in different states would look forward to it with the hope of getting new express and super fast trains for their states, provision of new rail lines, provision of facilities for different classes of travelers and for old people and specially for women. It is to be seen as to how the general budget takes care of these aspects of the Railway Budget.

(C) Indian banks after demonetization are flushed with funds. The Government is free from the pressure of recapitalizing the banks. Banks are now in a position to provide greater accommodation to the entrepreneurs in terms of loans for the housing and consumption spending. Liquidity in the economy can be significantly increased if the banks make use of their deposits.

(D) Given the need for higher spending to provide stimulus to the Indian economy an important thing that comes to mind is the maintenance of the fiscal deficit. The aim of meeting the target for fiscal deficit at 3.5 per cent this fiscal may be difficult. It may therefore become difficult to hold the fiscal deficit at 3% in 2017-18.

(E) The Goods and Services Tax expected to be implemented with effect from Ist April, 2017 may not be feasible. This has already been shifted to July-September quarter of 2017-18. The Government has to be aware of the impact of the GST regime on the different sections of the economy including the SMEs. Impact of the GST on different sectors has to be foreseen to prepare the road map for their development.

(F) Given the slowdown of the economy it is expected that there will be provision in the Budget for higher spending on infrastructure including railways and ports.

The Finance Minister faces a challenging situation where he has to initiate policy measures in the Budget 2017-18 to provide stimulus to the economy to make it vibrant and create conditions for higher growth. At the same time he has to maintain stability in India’s macroeconomic conditions with inflation remaining at a reasonable level.

(*Former Professor of Economics, Utkal University)