The Union Cabinet on Wednesday Sep 21,2016 has approved scrapping of separate Railway Budget and merging it with the General Budget.
The unanimous decision – to scrap over nine-decade old tradition of separate Railway Budget - was taken after Finance Ministry had proposed to restructure the entire budgetary system.
"We are merging the union budget with the Railway budget. There will be only one budget. The functional autonomy of the Railway to be maintained," Union Finance Minister Arun Jaitley said.
He said, "Debroy panel had recommended merger of Rail with general budget."
With a view to get all the legislative approvals for the annual spending and tax proposals before the beginning of the new financial year on April 1, the Cabinet headed by Prime Minister Narendra Modi approved advancing date for presentation of the General Budget by a month instead of present practice of unveiling it at the end of February.
The Cabinet also approved merging Railway Budget with the general Budget and doing away with distinction of plan and non-plan expenditure, officials said.
To facilitate this, the Budget Session of parliament will be called sometime before January 25, a month ahead of the current practice.
Note
The unanimous decision – to scrap over nine-decade old tradition of separate Railway Budget - was taken after Finance Ministry had proposed to restructure the entire budgetary system.
"We are merging the union budget with the Railway budget. There will be only one budget. The functional autonomy of the Railway to be maintained," Union Finance Minister Arun Jaitley said.
He said, "Debroy panel had recommended merger of Rail with general budget."
With a view to get all the legislative approvals for the annual spending and tax proposals before the beginning of the new financial year on April 1, the Cabinet headed by Prime Minister Narendra Modi approved advancing date for presentation of the General Budget by a month instead of present practice of unveiling it at the end of February.
The Cabinet also approved merging Railway Budget with the general Budget and doing away with distinction of plan and non-plan expenditure, officials said.
To facilitate this, the Budget Session of parliament will be called sometime before January 25, a month ahead of the current practice.
Note
Till now, the Union Budget was presented on the last working day of
February. A separate Railway Budget was started by the British in 1924
as most government spending was concentrated in the sector.
This is the first time in 16 years that the government has decided to review the Budgetary process.
Interestingly, it was during the earlier NDA regime in 2001, that the
government had dispensed with another colonial legacy and advanced the
Budget presentation timing from 5.30 p.m. to 11 a.m.
The Government of India has made several changes in its Annual Financial Statement, commonly referred to as budget. Some of these changes are:
The budget is represented under two accounts: revenue account and capital account. The revenue account means day to day running of the various government departments and services, interest payments etc.
Till this year’s budget, revenue expenditure and capital expenditure were further divided into plan expenditure and non-plan expenditure.
Plan expenditure: means the expenditure done under the five year plans, that is decided beforehand during the planning process.
Non-plan expenditure: means expenditure that lies outside the plan and for which no provision can be made as it is largely unforeseen, unpredictable and contingent on circumstances. E.g. expenditure on repairs and maintenance of assets, unfinished schemes, defence, law and order, etc.
From next year, the expenditure under both the accounts will not be divided into plan and non-plan as the premier economic planning institution, Planning Commission of India, no longer exists. It has been replaced by NITI Aayog, a think tank.
The 12th five year plan will end in 2017 and after that, there will be no five year plans, thus redefining the Indian Economy textbooks.
If not five year plans, then what?
The NITI Aayog will be preparing a 15-year vision document aligned with the country’s social goals and sustainable development targets. The first 15-year vision document will start from 2017-18. Aayog will also prepare a seven-year National Development Agenda which will lay down the schemes, programmes and strategies to be reviewed after every three years.
The vision document is similar to the Directive Principles of the State Policy of the Constitution, guiding where India should be heading but not enforceable by law.
At the same time, one should be looking at the documents laid before Parliament under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003:
Concerns with merger of railway budget with general budget
The proposal to merge the two budgets was given by the Bibek Debroy Committee at NITI Aayog. It is said that after the merger, Indian Railways will save around $1.5 billion every year by not paying the dividend it has to pay for gross budgetary support from the Indian government.
Indian economist Bibek Debroy, in an interview, has raised four concerns regarding this merger that still need to be addressed by the railway ministry and finance ministry:
The Government of India has made several changes in its Annual Financial Statement, commonly referred to as budget. Some of these changes are:
- Omission of plan and non-plan expenditure
- No separate Railway budget
- The budget in the Indian Parliament may be tabled earlier than before
The budget is represented under two accounts: revenue account and capital account. The revenue account means day to day running of the various government departments and services, interest payments etc.
Till this year’s budget, revenue expenditure and capital expenditure were further divided into plan expenditure and non-plan expenditure.
Plan expenditure: means the expenditure done under the five year plans, that is decided beforehand during the planning process.
Non-plan expenditure: means expenditure that lies outside the plan and for which no provision can be made as it is largely unforeseen, unpredictable and contingent on circumstances. E.g. expenditure on repairs and maintenance of assets, unfinished schemes, defence, law and order, etc.
From next year, the expenditure under both the accounts will not be divided into plan and non-plan as the premier economic planning institution, Planning Commission of India, no longer exists. It has been replaced by NITI Aayog, a think tank.
The 12th five year plan will end in 2017 and after that, there will be no five year plans, thus redefining the Indian Economy textbooks.
If not five year plans, then what?
The NITI Aayog will be preparing a 15-year vision document aligned with the country’s social goals and sustainable development targets. The first 15-year vision document will start from 2017-18. Aayog will also prepare a seven-year National Development Agenda which will lay down the schemes, programmes and strategies to be reviewed after every three years.
The vision document is similar to the Directive Principles of the State Policy of the Constitution, guiding where India should be heading but not enforceable by law.
At the same time, one should be looking at the documents laid before Parliament under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003:
- Medium term fiscal policy statement: It sets out three-year rolling targets for four specific fiscal indicators in relation to GDP, namely (i) revenue deficit, (ii) fiscal deficit, (iii) tax to GDP ratio and (iv) total outstanding debt at the end of the year.
- Fiscal policy strategy statement: It outlines the strategic priorities of the government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending and investments, administered pricing, borrowings and guarantees. The statement explains how the current policies are in conformity with sound fiscal management principles and gives the rationale for any major deviation in key fiscal measures.
- Macro-economic framework statement: It contains assessment regarding the GDP growth rate, fiscal balance of the Indian government and the external sector balance of the economy.
Concerns with merger of railway budget with general budget
The proposal to merge the two budgets was given by the Bibek Debroy Committee at NITI Aayog. It is said that after the merger, Indian Railways will save around $1.5 billion every year by not paying the dividend it has to pay for gross budgetary support from the Indian government.
Indian economist Bibek Debroy, in an interview, has raised four concerns regarding this merger that still need to be addressed by the railway ministry and finance ministry:
- What happens to dividends? Dividends i.e. corporate dividends is actually a repayment of debt that the Indian government extends to the railways in perpetuity and only the interest gets repaid, the principal is never extinguished.
- What happens to the existing debt? Does that continue or not?
- What happens to the gross budgetary support? In what form will it be extended now?
- What happens to the windows that the railways has for borrowing? Right now, the railways borrows through Indian Railway Finance Corporation (IRFC).
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