Early Budget, a welcome move

The government’s reported move to advance the presentation of the Union Budget by a month to January has good reasons behind it and some obvious benefits. The proposal was made by the Niti Aayog and is now under active consideration. The Budget is now presented on the last working day of February. It is usually in May that Parliament passes the Budget. By then, six-seven weeks of the new financial year are already gone. Therefore, a vote on account has to be passed in March for payment of salaries etc, till the time the Budget is approved. An early Budget will do away with this two-stage process and lead to a saving of Parliament’s time. It will give the people and the government’s departments a clear idea of financial allocations, revenues and expenditure in March itself. At present, ministries get only a few weeks to spend their allocations for the first quarter. So a good part of the budget usually lapses.

Budget proposals can be implemented only after the Finance Bill is passed in May. In the case of taxes like income tax, payment has to start retrospectively from April 1. If the proposals are finalised before that, tax payers can do better planning of their payments and savings and start the actual payments from April. The same is the case with corporates and business entities which are affected by tax and tariff changes and policy decisions announced in the Budget. All of them can start the financial year with a clear outlook if the Budget is passed before March 31. There are certain taxes which cannot be imposed retrospectively. At present, they come into effect on June 1 after the Budget is passed. The government could do without the notional loss and earn more revenue in such cases if the proposals are implemented from April 1.

While these are the benefits, there are practical difficulties too. If the Budget has to be presented in January, the previous year’s revenue and expenditure figures should be available in time for the finance minister to base his proposals on and to present the Economic Survey. It is not easy to get all this data in the first week of January. Even if the data is available, the minister gets only about three weeks to formulate his proposals. The government is also studying a proposal to start the financial year from January 1. In that case, the Budget will have to be advanced further. The government should consult all parties, state governments and experts on the matter before taking a decision, especially because states will also have to change their Budget schedules accordingly.