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2017 could be India’s breakout year for policy making. Here’s why

A uniform goods and services tax, the end of five-year plans, a possible switch to new financial-year cycle and may be no railway budget – India is about to change the way it plans and manages its economy.

business Updated: Aug 05, 2016 09:41 IST
Gaurav Choudhury
GST

A uniform goods and services tax, the end of five-year plans, a possible switch to new financial-year cycle and may be no railway budget – India is about to change the way it plans and manages its economy.(AFP File Photo)

The year 2017 may well turn out to be a breakout year for policy making in India.

A uniform goods and services tax, the end of five-year plans, a possible switch to new financial-year cycle and may be no railway budget – India is about to change the way it plans and manages its economy.

India, here comes GST

India’s indirect tax regime is set for an overhaul, with a patchwork of central and local levies making way for a uniform goods and services tax .

While quite a few rough edges, including the tax rate, need to be smoothened out, the government hopes to get the new system in place from April 1.

If the deadline is met, the finance minister would have ceded a big part of his discretionary power over indirect tax rates when he will present the 2017-18 budget.

“You will still have customs duties… There will still be some taxes, which the Centre will levy and the states will levy. Part B (which contains tax proposals) of the Union Budget will be a very small document after GST,” former finance minister P Chidambaram told HT on Thursday.

A council with Union finance minister and ministers from states as its members will decide the GST, which means the budget is unlikely to have the long list of indirect taxes that the finance minister presents every year. Delinking of goods and services tax from the budget-making exercise will be a major change in India’s policymaking.

Read | After GST, govt should tick the right boxes on the pending reforms agenda

No rail budget?

The government is examining the option of merging the rail and general budgets from next year, a move that will end a 92-year-old practice of a separate budget for the railways.

A common budget will allow a seamless national transportation policy, insulating the railways from political pressures, rail minister Suresh Prabhu is believed to have said in a letter to finance minister Arun Jaitley in June.

After Niti Aayog member Bibek Debroy recommended the merger, the prime minister’s office sought a reply from the railways, the world’s fourth largest train network.

The railways no longer constitute a major chunk of government revenues. Annual outlays of several public-sector undertakings are far bigger than that of the railways.

With the railways staring at bankruptcy on account of falling revenues and a mounting operating ratio -- paise spent to earn a rupee -- employee unions are for a common budget.

If the crisis persists, the railways may struggle to pay salaries and pensions. The financial burden can be transferred to the finance ministry if the budgets are merged.

Read | Rail budget must be done away with? Prabhu agrees

End of five-year plans

From next year, when the last five-year plan winds down, India will switch to a 15-year vision in keeping with its ambition to retain its status as the world’s growth engine.

Niti Aayog will draw up a plan keeping in mind the broader social objectives, changes in the world economy and the need to achieve sustainable development goals.

The government think tank will set targets and pilot the implementation of the new plan that will go “beyond the traditional area of ‘plan’” to cover internal security and defence.

A review of the longer-term vision in 2019 will also to align it with the periodicity of the political mandate. The next general elections are due that year.

Goodbye ‘Plan’, ‘Non-Plan’

The government will, as announced by finance minister Arun Jaitley in his budget speech in February, do away with the “plan” and “non-plan” expenditure distinction from 2017.

India’s annual spending is clubbed under these two broad heads.

Plan expenditure is the money spent on asset creation through centrally sponsored programmes and flagship schemes. Higher plan expenditure is considered good-budget management -- it implies that more money is being spent on assets that can multiply income and create jobs.

“Non-plan” refers to all other spending such as defence, subsidies, interest payments, including expenditure on salaries.

To make the system simple, the spending will be categorised as capital and revenue expenditures.

Revenue expenditure is the amount the government spends on day-to-day running of departments and services. In addition, the government also spends money on interest payments, subsidies and other such overheads.

Capital expenditure is the money spent on acquiring assets such as land, buildings, machinery, and equipment. Investments in shares, loans and advances that the Centre grants to states and union territories and its companies also constitute capital expenditure.

End of April-March fiscal?

There is a possibility that in 2017 the government comes up with a roadmap to switch to a new financial year from the existing April-March cycle.

A committee, headed by former chief economic adviser Shankar Acharya, is studying the “desirability and feasibility” of moving to a new cycle. It will submit its report by December.

Countries across the globe follow different patterns. In the US, the financial year runs from October 1 to September 30 while China follows a January 1 to December 31 cycle.

This is not the first time India is looking at changing the financial year. In 1984, the LK Jha committee had recommended a move to the January- December cycle.

The biggest argument in favour of the change is that the June-September monsoon, often described as the lifeblood of Indian economy, sets in barely two months into the financial year, making it difficult to plan for the remaining year, especially if the rains are deficient or excessive.

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