Friday, March 12, 2010

Beyond the Budget 2010

Bibek Debroy one of my favourite economists (Business Today, March 21, 2010.) has come out with a wish list of items which should get implemented by the government in the next 4 years. I am listing below a few of them.

a) Budget speeches should be restricted to 500 words and seven minutes.

b) The fiscal deficit should come down to 3 percent of GDP and revenue deficits should come down to 0 per cent.

c) All off-Budget items must form a part of deficit calculations. All personal and corporate tax rates must be standardized, with no exemptions. All exemptions must go for indirect taxes too.

d) Subsidies must be replaced by direct, but conditional cash transfers. Using UID numbers and based on individual socio-economic criteria, below poverty line (BPL) households must be unambiguously identified. Non BPL households must not receive subsidies.

e) Over time, the secrecy surrounding the budget must go. The budget must be placed in the public domain even before it is placed before Parliament.

I am adding to Debroy’s list.

a) From now on, the finance minister must spend less time on grandiose promises and instead talk about what happened during the year that passed, what was achieved, what could not be completed and so on.

b) The finance minister should not throw up numbers that by themselves are prone to misinterpretation. Thus he must not just say that he is allocating say Rs 30,000 crores for roads. He must also indicate how much of road construction the country needs, how many kilometers of road can be constructed with Rs 30,000 crores, how much China is spending on roads every year, etc. Then the public can make an informed judgment about whether the allocation is adequate or justified.

c)The government is spending the tax payer’s money. So we have every right to know how our money is being spent. Which means fiscal discipline is crucial. The non plan expenditure must be subject to stringent controls. The minister should not just mention that the revenue deficit has been cut to 4% of GDP. He must indicate what items have been cut, what items remain. Then the public can understand whether fiscal discipline is being implemented cosmetically or by cutting unproductive expenditure.

d) The Finance Minister himself need not present the budget if there is a danger of putting people to sleep. A smart bureaucrat who is an excellent communicator can be chosen for the task. The budget should be presented in such a way that it is inspiring and impactful even if it does not throw up surprises. So I would probably suggest about 20-25 minutes may be given to make the presentation.

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