UPSC 2020 General Studies 02; Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment: An article published on The Wire has presented valuable arguments in favour of a new narrative and more comprehensive Budget Making Process than the one which is in place now.
The Big Trends
- The Budget Day has ceased to be an occasion for announcing big ticket economic policies.
- Now, important economic policies are announced throughout the year.
- Important fiscal announcements have happened prior and post to budget.
- The Government announced major tax cuts in corporate sector in September 2029. The move was aimed at restoring corporate sectors’ confidence in the economy.
- The move was seen an attempt to dilute the significance of the budget-making process.
- The last budget announcement (FY’ 2019-20) was less about fiscal arithmetic and more about the political vision of the government.
- The Fiscal Responsibility and Budget Management (FRBM) Act governs the budget-making process in India. This act has made the budget-making process more rule-based. At the same time, it has left little space for imagination for the Finance Minister.
- The government’s “New Monetary Framework” has transformed RBI’s monetary policy into an inflation targeting exercise.
- Gross capital formation has suffered over the years, as excessive deficit procedures focused on “targets” rather than “routes” to fiscal consolidation. It is now state governments that have been spending relatively more on capital formation than the Centre.
- We no longer have the Planning Commission. Now the question is how will the regional inequalities be tackled?
- Should we rely on the Finance Commission for pursuing inclusive economic agenda and taking the states on board?
- GST Council has emerged as an important federal institution. Has this institution been able to perform its tasks? What should be its role in the future?
- Can the fiscal policy lead to a GDP Growth turnaround?
- What is more important: Fiscal deficit reduction or GDP Growth?
- It is highly debated whether “budgetary policies” as a counter-cyclical policy tool is effective in the present context, to announce “fiscal stimulus packages”.
What Needs to be Done
- Budget making process should be more transparent.
- The accountability mechanism of budget should be strengthened.
- There should be more debate and scrutiny of CAG’s audit of budget in Parliament.
- We should also have an effective medium-term fiscal framework.