Indian budget in the election year

Annual budget is the operational tool of the fiscal policy and strategically divulges issues and policy options for the following year. The finance minister presents the budget to the national parliament for vetting by the members of parliament. This is the worldwide practice within the democratic framework. The budget document is framed based on the prevailing macroeconomic background and with a detailed consultation process participated by different stakeholders.

The whole process of interaction facilitates setting a pragmatic and realistic work plan for effective implementation. The budget, in many instances, is reviewed midway against the planned target in recasting the various targets so that the implementation gets momentum. Both micro and macro targets are set based on available data. Macro targets such as GDP growth, savings or investment, resource availabilities, and expenditures in various sectors of the economy constitute an essential plank in the whole exercise. The annual budget, in many instances, represents the phase-wise implementation of the Five-Year and Perspective Plan, and thus the integration warrants deft projection on broad macro aggregates.

There is a unique coincidence in the current year’s budget formulation of India and Bangladesh; the annual budget is the last, as the national election is scheduled for January 2024. The worldwide implementation of the budget during the last few years was clouded by uncertainty; first, it was COVID-19, and when there was a respite, the bandwagon started with the Russia-Ukraine war. The implementation experience in the past did not face external headwinds; a democratic government could successfully weather the difficult time through policy accommodation. However, there are a lot of uncertainties in both the formulation and implementation stages. Currently, the appreciation of the USD is fuelling worldwide inflation hurting consumers. Covid-19 and the subsequent supply chain disruption owing to Russia- Ukraine war caused worldwide inflation eroding the monetary value of the fixed-income group.

Stakeholders’ interests are mutually exclusive, like private goods. Thus a balancing trade-off between different groups in arriving at a consensus is challenging in the budget formulation process. Ordinary people often dub budget as business-friendly. Members of civil society complain about the inadequate allocation of social sectors such as education, health, and social welfare. The equilibrium in the budget strategy is arrived at through the interaction of the different unionized groups and settled at a point that favors the most predominant group. The consumer groups, in many instances, are not unionized, and they lose the battle. The current perspective requires that the budget address specific relieving measures for the economic hardships of ordinary people.

A few measures could be beneficial for the consumer and the common people. First, the income exemption level and the standard deduction. The static exemption level at Tk. 2. 50 lakh needs to revise upward with an escalator clause equivalent to the official inflation rate. Last year’s revision of the investment rebate helped the more affluent section of the people.

Again, the structure of the income tax slabs favors the more prosperous section of the community, as the terminal slab is at 25 percent. The citizen expects the government of India should raise the income exemption level, currently at Rs 2.5, and formal deduction to Rs. 50,000 since 2019.

The recent statement of Finance Minister Nirmala Sitharaman that she was aware of the pressures of the middle class, “I too belong to the middle class so I can understand the pressures of the middle class. I identify myself with the middle class, so I know.” Secondly, the historically low tax-GDP ratio below 10 percent poses challenges in the mobilization of potential revenue that results in budget revision and inadequate allocation in the socioeconomic sectors such as education and health. The Tax-GDP ratio in India is over 20 percent, and the education and health sector allocation is about 9 percent. The allocation in the health and education sector is about 5 percent of the GDP.

There are certain peculiarities in the budget formulation process in countries worldwide. The lock-in and the Halwa ceremony in the budget formulation process in India are captivating in many ways.

The conventional “ Halwa Ceremony”’ with a ten-day “lock-in” period in the North Block in the ministry [a group of officials is quarantined] is an exciting feature in the Indian budget. The tedious exercise requires meticulous physical and financial balances. The resource balancing game in earnings and expenditures with a gargantuan budget in the bowls of the federal government, such as in India and the United States, needs a cautious outlook. The ceremony is performed before the “lock-in” process of the Budget preparation. The Union Budget 2023-24 with the 14 Union Budget documents will be delivered in the paperless form on February 01, 2023. The documents include Annual Financial Statement (commonly known as Budget), Demand for Grants (DG), Finance Bill, etc., as the Constitution prescribes. The whole set of documents will be available on the “Union Budget Mobile App” for hassle-free access of Budget documents by Members of Parliament (MPs) and the general public using the simplest form of digital convenience.

The Halwa ceremony is an annual ritual in which traditional dessert ‘halwa’ is prepared and served to officials and staff members of the finance ministry who were involved in the preparation of the Budget and upheld the budget secrecy. The Ceremony marks the beginning of the printing of the budget document. It is not desirable that the nitty-gritty of the final budget is known to different stakeholders before the same is placed in the Lok Shova. The budget 2023-24 is keenly observed by interested quarters as this is Narendra Modi’s government’s last budget before the 2024 general election.

A budget is a contract between citizens and the state. Fiscal stress, expectations, and citizens’ mistrust often brings instability and thus complicate the task. It is more painstaking to present a Union or federal budget than the national budget.

The writer teaches at BRAC University and BIDS as an adjunct Faculty in the Master’s Program in Economics. He can be contacted at mirobaidurr7@gmail.com.