Book review
There used to be the Nani Palkhivala lectures on the Indian Budget. Thirty years after they ended in 1994, a new annual series of books by former Finance Secretary, Subhash Chandra Garg is bringing in the discipline and rigour of analyzing the Budget every year. The books run into hundreds of pages taking a comprehensive look at the schemes and announcements of the year while putting the numbers in context of the recent history of the past few years. As a bonus for the commentators on television, there is a framework for rating a Budget on a scale of 0-10!
The Budget in India is a comprehensive financial document of the priorities and policies of the government of the day. ‘Where the rupee comes from’ and ‘where the rupee goes’ shows the realized action of the Executive. India’s Budget tradition makes it the document of economic policy where new ideas and schemes are announced. An annual effort in tracking the changing composition of the incomes, spends, and pronouncements of the government is a useful guide to economic policy.
Many insights
I have been a regular reader on the Budget speech and Finance Act from sometimes towards the end of the last century. The excitement of reading the Budget on presentation and commenting on it within the next few hours can be exhilarating but fleeting.
A book length review often puts together insights that may not be capture the mindshare of attention immediately. For me, some of the interesting ones were:
- Repayments of debt and payment of interest is simply “charged” to the Consolidated Fund of India (CFI) and is not voted upon. No wonder India does not face the type of debt ceiling challenges that the US does.
- The financial budgets for the various key Legislative, Judicial, and Constitutional positions (like ECI, UPSC, etc.) run only into a few hundred crores every year. Given the grandeur and the importance of such institutions, somehow it never registered that each of them operates on relatively small annual budgets.
- A large part of the capital expenditure (capex) of the government is equity investment into telecom (MTNL, BSNL), roads (NHAI), Railways, and other institutions. In most such investments, the financial return on investment (ROI) on such capex is, going in, expected to be low or negative. The operating ratio of Indian Railways has been hovering around or above 100% (meaning revenue expenditure is equal or more than revenues). The Indian Post have also consistently been requiring capital infusion of close to Rs 20,000 crore annually. One assumes that the social ROI is higher and positive.
- Contribution of Intellectual property rights (IPR) is increasing in Gross Fixed Capital Formation (GFCF).
- The idea that expenditure on public goods and services was called non-plan expenditure and that may have been a reason for its benign neglect was interesting. Also, there is limited relationship between government expenditure and the calculations underpinning the gross value added (GVA) for the government.
- There are loans given to foreign governments which have defaulted on it. I did not find the names of the countries in the book – this is an interesting topic.
- The estimates of the value of listed stocks of public sector undertakings and how much the government can generate as fiscal resources if it were to divest (even if only up to 51%). This used to be a staple chart that we prepared in the sell-side reports of Mumbai – it is quite interesting to see a bureaucrat from Delhi use a similar logic!
Some points on presentation
The book could start off with the key takeaways upfront: Budget rating (can any Budget even get close to 10 in the current framework?), key changes in policy direction, important takeaways or commentaries, and how the medium-term outlook has evolved. For many readers, such changes are of immediate and pressing importance.
The book has many interesting analyses that get hidden away in the large volume. The discussions on RBI and its dividend policy are a chapter topic in itself. Similarly for the changing labour force dynamics (employment and unemployment, etc.). There is an analysis which shows that the new tax regime has been largely used by taxpayers who may have very little income to tax. There is an interesting idea on how to think of tax slabs for personal income (as a ratio of per-capita income). The idea that sometimes policy makers try things which have not worked is illustrated by the comparison of some of the pension-linked employment linked incentives (ELIs) with the Atmanirbhar Bharat Rojgar Yojana (ABRY) and Pradhan Mantri Rojgar Protsahan Yojana (PMRPY).
The author has written extensively about his relationship with the current government and its key political functionaries: sometimes this shows up in the choice of words when commenting on a policy, its evolution, and the evaluation of its success. Given that these books are expected to be an annual feature, it will be useful to parse the analysis on the back of economic and financial logic and not personalities or their actions.
Deeper questions need to be detailed
The book is a repertoire of many, many numbers. [On that count, it could benefit the reader if such tables could be replaced by charts and by moving to trillions and billions (instead of crores).] The books, which have now been coming out for two years, can start to, over time, turn their attention to forward-looking policy questions. For example:
- If we did a de novo zero-based budgeting (by taking away linkage to the previous year), how would the author think about the Budget maths? What would be the tax-to-GDP ratio and other revenues, and the proportions of expenditures, and fiscal deficit? There is a need to write a comprehensive paper on how to think about the fiscal architecture for a USD 5 trillion and a USD 10 trillion economy and the political pathway to building that architecture.
- How do we create a bipartisan and non-political Congressional Budget Office (CBO) type institution(s) which can assess and opine on the fiscal impact of the key schemes of the government of India? For example, the recent coverage of Rs 5 lakhs for those above 70, or the conversion to Unified Pension Scheme (UPS) require a discussion on long-term forecast on fiscal. Over time, MGNREGA and PMGKY have continued creating material, long-term fiscal commitments.
- There is scope to do mode detailed analysis. For example, there is a lot of discussion on personal and corporate income taxes. However, even within these, which ‘heads of income’ or ‘types of persons’ are contributing can give insights into the changing economy. Similarly, understanding which sections of exemptions and deductions cost the government how much can inform the importance of such provisions. Linking up tax incentives with job creation could be another such. Yes, this will move it from a commentary on the immediate budget – however, it can then create a framework for longer term changes in tax code, etc.
Conclusion
The books, if they continue over time, will become an important repository of analyzing the government of the day and how India evolves as an economy. They will serve a vital role in promoting a deeper and engaged understanding of the dynamics of fiscal policy and growth and its impact on the social contract amongst the citizens. In a world of immediate 11/10 ratings on the television for the Budget, it is important to create the long form analyses that can inform and empower.
Views are personal.
