Will Modi Sarkar come out with a 6th Budget?

This will violate the time-honoured convention that a government elected for a five-year tenure presents only five full Budgets, but the NDA government will no doubt present it as yet another initiative of Mr Modi, says A K Bhattacharya.

Ilustration: Uttam Ghosh/Rediff.com

The National Democratic Alliance (NDA) government under Prime Minister Narendra Modi has so far presented four Union Budgets.

Its fifth Budget, however, will be fundamentally different from the previous ones and will be quite unique.

There are many reasons for it being so, but the primary one is the roll-out of the Goods and Services Tax (GST) from July 1, 2017.

How will the GST make such a big difference?

Remember that the central excise duty and service tax account for almost 35 per cent of the Union government’s gross tax revenues.

Now, both these taxes have been subsumed under the GST.

Of course, petrol, diesel and some other sectors are outside the purview of the GST at present and the two fuels account for over 54 per cent of the total excise collections or over 30 per cent of the combined revenues from the excise duty and service tax.

But even after excluding them, the Union Budget’s role in determining indirect taxes will be considerably reduced next year.

This is simply because all tax rates like the excise duty, service tax, a few other levies like the additional customs duty or the special auxiliary duty, and the state value-added tax (VAT) rates are now subsumed under the GST.

Consequently, the forum for deciding the GST rates for various commodities and services will be the newly instituted GST Council and not the Union finance ministry.

Indeed, the finance departments in state governments also will lose their jurisdiction over determining the rates for state VAT, as those will now be decided by the GST Council.

For industry and trade, too, this will be a new experience.

The GST Council is headed by the Union finance minister and its members include all the finance ministers of state governments.

Its secretariat is serviced by the revenue secretary in the Union finance ministry.

Representations for a review of GST rates will have to be made to the Council and not to the Union finance ministry or the finance departments of state governments.

Imagine, therefore, a situation, where the Union finance ministry will have very little to do by way of rate fixation or review of excise duty and service tax, which till last year used to account for more than a third of the government’s gross tax collections!

The change will be quite dramatic.

State governments too will have nothing to do with a tax revenue stream that are on average well over 60 per cent of their own tax revenues.

What will this mean for the Union Budget?

The Budget speech will be much shorter than in the past, as it won’t be required to dwell on a large chunk of indirect taxes.

All changes in the GST rates will be determined in the GST Council and will only require a token nod of approval of Parliament as part of the Finance Bill.

The Budget speech therefore can be more focused on Customs duty changes and direct tax provisions proposed in the Budget.

But as it is widely known, direct tax provisions and Customs duty do not require many changes, which will make the Budget exercise simpler and shorter.

Expect, therefore, a shift in the emphasis of the Budget towards the government’s expenditure priorities.

The finance minister can devote more attention and time to outline the various schemes and projects for different sectors of the economy.

In other words, with tax proposals being discussed and finalised in other forums like the GST Council, the Union Budget will become the government’s principal document outlining its expenditure.

An expenditure Budget will have other implications as well. The NDA government has so far remained committed to a path of fiscal consolidation.

All its four Budgets so far have stuck to the fiscal consolidation targets, thereby gradually narrowing the deficit.

It is now examining the recommendations of the N K Singh committee on fiscal consolidation and is likely to introduce a new piece of legislation to mandate a glide path for future fiscal correction.

In the normal course, a Budget exercise focused on expenditure is likely to be bad news for fiscal consolidation.

But with the commitment to put in place a new fiscal consolidation road map, the potential damages arising out of an emphasis on expenditure programmes in the next Budget may be somewhat limited.

There is yet another reason why the fifth Budget of the NDA government may become a unique exercise.

The option of changing the financial year to a January-December cycle is under examination at present, even though a committee of experts headed by former chief economic advisor, Shankar N Acharya, is reported to have disfavoured the idea.

If indeed the government goes ahead with the switch-over to the proposed January-December financial year cycle from 2019, the presentation of the fifth Budget may have to be advanced by a couple of months to facilitate the launch of the new system.

If that happens, then the fifth Budget may not be the NDA government’s last full Budget.

With general elections due only in May 2019, there will be strong pressure on the NDA government to go in for a sixth Budget, which need not be an interim vote on account.

This is because a change in the financial year to the January-December cycle will necessitate the presentation of the Budget at least by November of the previous year.

The argument will thus be why present a vote on account for 2019, when general elections are still about seven months away.

This will violate the time-honoured convention that a government elected for a five-year tenure presents only five full Budgets.

But a sixth Budget looks like a possibility if the NDA government advances the financial year to the January-December cycle from 2019.

Purists will frown upon this, but the NDA government will no doubt present it as yet another initiative of Mr Modi.