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Advancing the Union Budget will help expedite fund flow from central ministries to states

Nilachala Acharya

  • 31 January 2017
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This will help expedite fund flow from central ministries to the states and improve fund utilisation.

The Constitution of India does not mention any specific date or day for presentation of the Union Government’s budget in Parliament. However, as a convention, the Budget used to be presented in Lok Sabha on the last working day of February every year. The incumbent government has decided to present the Union Budget for 2017-18 on February 1 this year. There has been a lot of discussion on this, especially with respect to the proximity of budget presentation to the forthcoming Assembly elections in five States and in the context of the need for taking into account the impact of demonetization on the Indian economy.

We need to keep in mind that the process of formulation of the budget takes a lot of time; it starts with the Ministry of Finance issuing a Budget Circular to all ministries and departments as early as September, though the last three months in the run up to the budget presentation see the bulk of the action. One of the concerns raised in this context is that the government would not have been able to take into account the impact of demonetization on Indian economy comprehensively because of the time-lag involved in the availability of some of the key statistics. Also, the data on GDP and sectoral-growth in the economy, which would have been relied upon in this year’s budget formulation process, are likely to be those based only on the first two quarters of the financial year 2016-17.

However, we also need to take into account the fact that advancing the date of budget presentation would allow Parliament to debate and vote on the budget proposals before the commencement of the next financial year on April 1. This will make the practice of passing a Vote on Account just for the first two months of the next financial year redundant. More importantly, it would push the spending ministries in the Union Government to start releasing funds (to States and other authorities) in the central schemes much before the onset of the monsoon, which stalls construction activities for some time and hence aggravates the problem of slow pace of fund flow and utilisation in many sectors. This could, at last, partially address the long-standing problem of intended outcomes of central schemes not getting achieved due to delay in fund flow from the nodal ministries at the Centre and the subsequent delay in fund utilisation. Advancing the presentation of Union Budget by a month might also help the State Finance Departments get a clearer picture of the resource transfers from the Centre, which would help them arrive at more accurate projections in the State Budgets.

However, this measure alone will not address the fundamental weaknesses in the public finance management system in India. There is a need for a host of other, and more fundamental, reforms in this sphere. The most important measure needed for improving results from public expenditure pertains to the quality of decentralised planning in the country. The State Finance Departments also need to ensure timely flow of funds to the spending departments and local governments, especially because all central funds now get routed through them and the State Treasuries. There is also an urgent need for enhancing transparency about budget flows and expenditures at the district level, which requires proactive disclosure of such information without time-lag. With the help of the Accountant General (AG) offices, state governments can provide nearly real time information on fund flows in various development schemes across sectors in public domain, which would create a stronger public demand for timely and effective utilisation of funds.

Some people have also argued that changing the fiscal year in India, from the current April - March to January - December or October - September, will improve public finance management in the country; one of the factors in this regard is that Monsoon season slows down the pace of some of the activities in the first two quarters of the financial year at present. We hope this measure of advancing the presentation of Union Budget by a month would be followed up by other important steps as well.

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