In a major reform process, the government on Wednesday approved the merger of Railway budget with the General budget. It also announced the advancement of the date of budget presentation from the last day of February to the 1st of the month, and the merger of the Plan and Non-Plan classification in the budget and accounts.
The most important fact is that after the merger, the Railways would not have to pay dividend to the central government, and its capital-at-charge (the government’s investment) stand to be wiped off; the Railways used to pay up to Rs 10,000 crore as dividend to the government. This move will also transition the Railways to better capital budgeting enhancing public accountability.
Removing distinction between expenditures
The removal of distinction between Plan and Non-Plan expenditure is also a welcome step. There will be more transparency in accounting as expenditures will get classified as revenue and capital, largely mirroring the commercial principles of current and capital expenditure.
In the backdrop of the abolition of the Planning Commission and setting up of the NITI Aayog, the classification of expenditure as Plan and non-Plan lost its relevance. The extension of the Direct Benefit Transfer (DBT) scheme also required removal of this classification as per the Expenditure Management Commission.
Advancing budget presentation
The government also approved advancing presentation of the Union budget by a month. This early presentation will mean that the entire exercise gets over by March 31, and expenditure as well as tax proposals come into effect right from the beginning of the new fiscal year, thereby ensuring better implementation.
On the flip side, this will lead to less expenditure by various ministries in the current fiscal which will be a deterrent for growth though the fiscal deficit management will get a positive boost.
Estimates indicate that one month advancement of Union budget will have a positive impact of around Rs 1-1.5 lakh crore (1% of GDP) on gross tax revenue to the exchequer.
With these steps, it could now be the right time that the central and state governments begin the shift to accrual accounting.
(The author is Chief Economic Advisor, SBI. The views are personal)