Indian Budgeting - A Critical Analysis of Budget Process Realities

Prof. R K Gupta
Management Training Centre
E-mail : /

Indian Budgeting - A Critical Analysis of Budget Process Realities

Indian budget 2004-2005 is out, with mixed observations. Good, bad and stereo type. Let us face some hard figures and facts and Analyse the need for better budgeting as Managerial students. We should also stop kidding ourselves coming out of mental rut in which Indian public Administration is trapped since decades.

Indian government's income is barely under Rs. 3 lac crores. Which means about Rs. 2900 per head per year only. This itself is a pittance comparing to most of countries, half of which is eaten off any way by bureaucracy setup, interest repayments and corruption. So a citizen ON AVERAGE gets benefit of Rs. 1400 per year from central pool. What do we think anyone can do with such small amount? Dig canals, provide roads, health services, education, pensions? If we think so, it is a fancy dreaming. Most of big talks in budget are populist and to make people happy for some time till they forget old pains. Indian budgeting is traditionally cut & Paste technique. Every year make one lobby happy with sops, take some more money from some items and relax in some others. There is hardly any logical reason in doing so. For instance, why excise duty is raised on Steel in this budget -no one understands. As regards Direct taxation, Stop bleeding Indian citizen more and more. Tax rates are already saturated in every thing. Those who don't pay it anyway continue to do so. Honest are being squeezed dry ( Refer Laffer Curve of famous US economist) The tax burden is back breaking and how much you will tax the citizen in every thing? The cost of collecting personal I. Tax is almost as much as the collection, so why not increase exemption limit to Rs. 2 lacs in one stroke? Instead catch the corrupt and punish them severely who evade taxes be it I tax or excise or sales tax ( It is almost 50% theft in all states in sales tax -a major revenue generator).  The author's opinion says that there should be just simple taxation tariff structure. In two slabs in each.

Suggested example:

Income tax: Personal - More than 6 lacs PA- 20%
                                        more than 2 lacs                      - 10%
                                        below 2 lacs                            -Nil
                                        Corporation tax                        -25%

Cut down and withdraw all kinds of rebates and schemes. These only help Chartered accountants and corrupt IT officials and not the nation. Personal tax otherwise, is very little  revenue generator.

Excise duties: 0%, 4% and 8 % and one negative slab of 24%
                           Coupled with VAT.
Sales tax in States and CST:
                           CST -2% across board and 1% for essential commodities.
                           State sales tax- 0%, 4% and 8%. Period. No more.
                           Service tax -      4 % across board. Period.

Time has come to make government jobs unattractive for which our youth jossle and run into each other. Every one knows why? Bring marked changes in Prevention of Corruption Act and make systems IT powered and reduce powers of all types of bureaucrats including police ( one of the most inefficient, under trained, insensitized and corrupt organisation in the world).

Cut down government size by 1/3rd immediately (excepting Judiciary), out source services to private organisations including crime detection & investigation services in police department, freeze salaries of public servants and withdraw their wasteful perks. We can easily save Rs. 10,000 crores this way. The pension amount of Rs. 15,500 crores every year is mind boggling figure. What their private sector counter parts get? Nothing. Even PF and MIS rates for public have been reduced driving them to old age estitution. What good is such development? This money saved as above should be diverted for social security funds and unemployment allowance and paying good interest rates on small savings encouraging it which is laggin  at 19% instead of desired level of 25-30% . Cut down defense expenditure by 20% instead increasing it by 23% as proposed. What message we are trying to give to world and neighbouring countries? The present realities of geopolitics don't call for such heavy investment now atleast in Indian subcontinent. Diplomacy and flexibility should replace expenditure and muscle flexing and threats to each other's country. A saving of another Rs. 15,000 crores can be made. This can be used for education, health care and doubling the capacity of Judges by atleast 2 times immediately which is very badly required in India. Crime has to be under check and fast and fair judiciary is foundation of democratic system.

Economics alone does not work. It is social economics or welfare economics that works in country like India whose budget size is smaller than many states in US but population 3 times of entire US, with 1.5 crores people adding each year. I don't think this beaten track planning will bring any relief to bourgeois population. It sure will fill up coffers of corrupt and corporate tycoons as usual and some business lobbies like in Computers, cement and Steel.  The inflation rate will sure go up in due course. Interest rates on savings bank rates should be increased immediately to stop erosion of savings of common men. It should always be 2% plus, over inflation rate. We should tie up public servants' salaries with performance and per capita GDP (Which is barely under Rs. 21000 per annum as per ESI 2004, whereas even a peon now gets Rs. 60000 per annum . The skew in public distribution and wealth distribution is obvious. Same way upper salary limits should be fixed in private sector too, specially MNCs. It is quite logical message. Help produce more, make society better place to live and earn more or simply quit. This is message of public governance productivity. Indian railways which boasts of 1.5 million employees can very well do with half the strength with modernisation and outsourcing many functions.

India should learn to fix working and monitoring norms in each area of activity including judicial performance and then do budgeting. Can any economist tell me a better way? Am I asking too much to fix performance standards for all departments of administration including army and judiciary? If the judiciary cannot improve itself it has no right to judge others.

The goals can be quantitative/qualitative but mostly, both. Usage norms in line with modern IT based technology and banchmarked with best run countries should be fixed and achieved. Financial budgeting is end of it all. It is end result and not beginning. It is nothing great.

Do you think without accountability and monitoring even what has been provided in Budget will succeed and be achieved? As Rajiv Gandhi once said, 60% funds for rural areas will go out of system into private and Babus' pockets. Therefore, we should hand over budgeting to Ministry of Planning and Program Implementation with full powers to a politically independent Planning commission to design budget and its implementation procedure. Budget is not just financial accounting, it is policy document. Take it off from Finance Ministry. Treat it as Strategic National document, one annual and one Mid Term for 5 years period, each blended smoothly into each other with sharply defined performance criteria tagged on top of each account head.

Prof R K Gupta
Management Training Centre
E-mail : /

Source : E-mail July 9, 2004




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