From next year onwards, rail budget will be merged into general budget just as budgets of other department. Finance Minister Arun Jaitley is right in saying there is no justification for a separate Rail budget when allocation for certain other departments like defence, roads and highways are more and yet part of general budget.

Nowhere in the world there is a separate rail budget but in India this practice had continued, even 70 years after independence as it gave long handle for political parties to indulge in populism. Announcements in rail budget seldom get implemented for paucity of resources. Rail budgets had been exploited most during the coalition governments as it gave ample opportunity for populism, particularly to the party holding that all important portfolio. The populism many times costs the economy dearly, besides bleeding the Railways,

The rail Budget was separated from the main Budget, following recommendation of a panel headed by British railway economist William Acworth in 1920-21. The rail Budget has had a separate existence from the general Budget since 1924 when the British spun it off for a better focus on India’s most important infrastructure network. The Railways then accounted for 70 per cent of the total budget. For the British Railways were important as it facilitated them in troop movements and establishing their control in the entire Indian Peninsula. But today it accounted for mere 15 per cent of the total union budget despite India having largest rail network in the World

So it is certainly an historic step and will help in moving towards minimum government and maximum governance. Global and domestic business sentiment too would get a further fillip and so would the environment for doing business in the country.

The merger idea was recently mooted by a committee headed by NITI Aayog member Bibek Debroy, as part of the restructuring of the Railways. This would help in tackling structural problems faced by the railways.

In fact presentation of the general budget itself, requires reforms. No country has such an elaborate general budgets with several booklets, a long winding budget speech in Parliament with several populist measures included. Some of budget announcements do not see the light of the day during that financial year. In China budget presentation is hardly 10-15 minutes job with government presenting one or two pages of statement of accounts for the concerned year and projections of revenue, expenditure and deficits for the subsequent year. In several advanced economies budget presentation is a low key affair as tax rates are hardly tinkered with.

Only in India tax rates are frequently changed to pursue vote bank politics and provide succor to some vested interests. India is one of the few counties where there is huge tax exemption list. The government loses as much as Rs 5.75 lakh crore annually due to tax exemptions mainly to corporates. This is almost equivalent to the fiscal deficit of the country.

The indirect taxes in particular are tinkered with so minutely to serve the vested interests as well as populism. Of course some sanity has come to budget making in recent years with government moving towards three or four tax rates. Some stability on direct taxes has now been achieved and with the rollout of Goods and Services Tax, there would be some stability in indirect tax rates as well.

Railway Minister Suresh Prabhu is justified in saying that this is the biggest reforms done till date in the sector. The financial autonomy will remain with the railways. The existing financial arrangements will continue and all revenue expenditure, working expenses, pay and allowance and pension will continue to be met by revenue receipts of the railways. Some experts and former finance ministers and railway ministers argue that though on paper financial autonomy will not be lost, experience show that it will be as finance minister over a period of time will have more say on railway allocation than the railway minister as was the case with gross budgetary support to erstwhile planning commission. The friction is bound to occur, they argue.

But the immediate benefit is that Railways will no longer have to pay dividends hereafter. The railways pay nearly Rs 10,000 crore as dividend annually and this amount can now be put to use for capital expenditure of railways. It will also certainly reduce paperwork and do away with separate passage of appropriation bill for railways. Railways can now adopt rational approach to unviable projects.

Another important change brought about is in-principle clearance to advance the presentation of the Union budget to early part of February, perhaps first of the month instead of last day of the month. This is a significant development as this would help in ensuring that the entire budget exercise, which is a three stage passage in parliament, is completed before the end of the financial year. Usually the general budget is presented on February 28 or 29 if it is a leap year and entire budget exercise has to be completed within 75 days of budget presentation. This means the budget will be passed by May 15 as a result government is forced to go in for what is called vote-on-account along with presentation of the budget for government expenditure for two months of April and May in the new financial year. As per the constitution, the government cannot spend any money from the consolidated fund of India without getting Parliamentary approval.

Since the budget passage with nod for finance bill is completed only by May 15, government will have to seek temporary approval by way of vote on account for spending in April and May until the passage of the full budget. This also meant delay in implementation of the plan and spending proposed in the budget. So by completing this budgetary exercise before March 31, government will now be able to implement its budgetary plans from day one of the new financial year that starts on April one. This will ensure that government does not lose two months of precious time in implementing its planned projects in the new year. The first stage of budget passage in Parliament is the approval to vote on account. The second stage is passage of demands for grants by various ministries and departments and third and final stage is the passage of finance bill, which provides for various new taxation measures in the budget.

By subsuming the Rail Budget in the general budget, the railways would be in a better position to raise funds, from elsewhere including foreign on the strength of the sovereign to invest in projects having long gestation period. It would also help in bringing about structural reforms in the Railways. Only thing the government will have to ensure is that the operational autonomy of Railways is not compromised as feared in some quarters. Also this move should not become a precursor to privatization of Railways, which may have a disastrous consequences in a country like India where the Railways are the life line, particularly for the poor. Along with this merger or rail budget, the government decision to advance the general budget presentation and doing away with the distinction of plan and non-plan expenditure should lead to better planning and spending outcomes in the entire financial year by various ministries and departments. (IPA Service)