Controlling finance, a responsibility on Parliament
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The real issues in implementing FRBM Act need a special discussion
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— FILE PHOTO
HUGE TASK: Union Finance Minister Pranab Mukherjee on his way to present the budget proposals.
A key requirement of any democracy is the legislature’s control of the government’s purse. The body representing the people should ensure that revenues are raised and is expenditure incurred by the executive as approved by it.
The Constitution of India prescribes the procedures to get legislative approval for raising and spending money. The instruments are the Annual Financial Statement or the budget, the demands for grant with details of expenditure, the Appropriation Bill to formally approve expenditure and the Finance Bill spelling out how revenue is to be raised. After examining these, the Lok Sabha gives its approval to the two bills which become acts. The stage is set for the government to implement the budget. The Comptroller and Auditor General, a constitutional authority, submits reports on the implementation which are discussed by the Public Accounts Committee of Parliament.
A difficult task
This places an onerous responsibility on Parliament, especially the Lok Sabha. The task is made more difficult by the growth and complexity of government functions. The size of government revenue and expenditure is increasing exponentially.
The budget approved for the Union Government for 2009-10 authorises it to spend Rs. 10.20 lakh crore as compared with Rs. 42,536 crore in the 1984-85 budget( The latter budget also was presented by Pranab Mukherji who held the finance portfolio then ).
The competing demands on Parliament’s time and frequent interruptions to its functioning when in session denied full and in - depth discussion of various budgetary issues. Fiscal reform and consolidation has now become urgent in the context of runaway budgetary deficits. This in turn calls for comprehensive and objective discussion of related issues in Parliament.
Earmarking time, exclusively for this, is imperative while drawing up the business schedule for each session of the Lok Sabha. The general discussion of the budget and selective scrutiny of a few demands for grant seem hardly sufficient. Some specific issues for discussion in Parliament are dealt with here. Article 292 of the Constitution lays down that the government can borrow within limits as fixed, from time to time, by Parliament by law. But no such law has been passed so far . It is time Parliament considered such a legislation in the interest of sustainable public debt and to avoid undue burden on future generations.
Parliament passed the Fiscal Responsibility and Budget Management Act, 2003, with targets of budget deficit reduction, but with no cap as such on public debt. The implementation of this Act has raised misgivings as present attempts are confined to achieving numerical deficit targets through revenue buoyancy, recourse to off - budget expenditure and selling family silver (disinvestment of PSU shares) without addressing basic problems in revenue and expenditure policy and management.
The medium-term budgetary projections submitted under the Act are in aggregates without giving any meaningful break up of estimates and spelling out of realistic assumptions. Austerity measures on travel and periodical ad hoc 10 per cent cuts in non-Plan expenditure hardly touch the fringe of expenditure reform. The real issues in implementing the Act need special discussion in Parliament.
Foregone revenues
Huge revenue is forgone every year through exemptions given under direct and indirect tax laws. These are not shown in budgetary revenue estimates. Government budgeting is on cash basis and only the actual cash revenue received net of exemptions is reflected in the revenue estimates and revenue collections. Parliament is not required to approve this.
The amount forgone in 2008-09, as shown in one of the annexures to the Receipts Budget 2009-10, was Rs. 4.18 lakh crore (68 per cent of aggregate collections). Parliament should discuss steps to bring this under its control. One method may be to treat the amount involved as tax expenditure and have it passed by Parliament under a demand for grant. This will be in the interest of parliamentary control over the purse, and facilitate monitoring the need for and effectiveness of tax exemptions.
Improvement of delivery of government services is often mentioned as an important matter. The Prime Minister in his recent address at the PG Institute of Medicine had referred to it in the field of public health.
In Britain, a delivery unit was set up under the P.M. 2001-5 to help achieve the targets set for government departments. In India, performance budgeting was in vogue for quite some time. Output and outcome budgeting has been recently introduced for Plan expenditure. Parliament can allot time to exclusively review the implementation of this important instrument of accountability of government and the steps to improve the output - outcome budgeting.
Stimulus pressures
Fiscal stimulus has led to large expenditure from the budget. Special discussion by Parliament on the results achieved so far will be useful. As the stimulus package covers diverse areas in revenue and expenditure, the government can bring out a paper giving a detailed break - up of revenue and expenditure in this package as also the outputs and outcomes. In Australia, the Auditor General is conducting a special audit of fiscal stimulus. His Indian counterpart can consider a similar audit.
In this context, an unusual suggestion for consideration of the Lok Sabha secretariat may be relevant. An ad hoc committee of Parliament can be set up to have a joint hearing of the Finance Secretary and the RBI Governor on issues of coordination of fiscal and monetary policies. This is a crucial issue at the moment when large doses of fiscal stimulus place pressure on monetary policy. Recently the RBI increased the SLR for banks with a view to getting increased support for the government,s borrowing programme.
A. RANGACHARI
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