In a significant financial sector reform, India on Wednesday decided to bid adieu to three British-era legacies -- the 92 year-old practice of separate general and rail budgets by unifying them, ending the distinction between plan and non-plan expenditures and advancing the presentation date in Parliament from the last week of February."From the coming year, the Railway and the General budgets will be amalgamated. There will be only one budget. Secondly, the distinction between plan and non-plan expenditure will be ended from next year. Consequently, there will be only one appropriation bill," Finance Minister Arun Jaitley said here after a cabinet meeting, presided over by Prime Minister Narendra Modi.The Finance Minister said over the years, the budget dynamics had undergone a sea change, with some ministries like Defence having more outlays than Railways. "We will also complete the twin-budgetary exercise before March 31," he said, alluding to the decision to also advance the date of tabling.
The decision to merge the two budgets, officials said, was mooted by Railway Minister Suresh Prabhu and endorsed by official think tank NITI Aayog -- which also proposed the doing away of the distinction between plan and non-plan expenditure. The decision on the merger of two budgets will also save Indian Railways Rs 9,700 crore it pays as dividend to the exchequer.Both Jaitley and Prabhu, during the press briefing, said that the distinct identity of the Indian Railways will be maintained -- including the freedom to raise resources via extra-budgetary means and fix tariff."Functional autonomy of the Railways will be maintained," Jaitley said. "The government will also take an initiative to ensure there is a separate discussion on Railways during Budget Session," he added."This is a historic step, matching global benchmark and best. This will help raise capital expenditure in Railways which will enhance connectivity in the country and boost economic growth," Prabhu said, adding: "Our effort to leverage extra budgetary resources will continue."The Railways has seen a separate budget since 1924 when the British thought it necessary to focus on India's most important infrastructure network. The Railways then accounted for 70 per cent of the total budget -- now pared down to just 15 per cent, on an average, of the country's overall budget, the size of which was around $300 billion for this fiscal.India Inc welcomed the decisions.
"Purely from a policy point of view, the cabinet decisions send a clear message that the government is orchestrating big bang reforms in a major way," said CII Director General Chandrajt Banerjee. "Global and domestic business sentiment would get a further fillip and so would the environment for doing business in the country."Jaitley also clarified on the proposed new date for budget presentation and said while it will be advanced, the decision will depend on a host of issues, notably state elections.He, nonetheless, said the advancement is to ensure that the Finance Bill is passed in the first half of the Budget session, than spill over to the second half after a month-long recess.Finance Ministry officials said after the abolition of the Planning Commission, the relevance of plan and non-plan expenditure is lost -- and a better indicator of productive and general expenditure would be a distinction under the heads of revenue and capital.
For long, non-plan expenditure is what the government earmarked for the so-called non-productive areas such as salaries, subsidies, loans and interest, while plan expenditure pertained to the money aside for productive purposes, like various developmental projects of ministries.But this exercise involved demands raised by ministries and departments, and their scrutiny by the now-defunct Planning Commission based on the larger goals set under Five Year Plans. Now that the panel has been annulled and replaced by a think tank, this process, too, had lost relevance, officials said."The plan, non-plan bifurcation led to a fragmented view of resource allocation to various schemes, making it difficult not only to ascertain cost of delivering a service, but also to link outlays to outcomes," a Finance Ministry statement said. "The merger in the budget is expected to provide appropriate budgetary framework having focus on the revenue, and capital expenditure."