Merger of Rail Budget with Union Budget – Modi Government breaks the Legacy

Vikram Doshi, Partner-Tax, KPMG India

The availability of data and assessing the trends/projections may pose a challenge, feels Vikram Doshi, Partner-Tax at KPMG India

The Union Budget also referred to as the Annual Financial Statement in Article 112 of the Constitution of India (1949) was for long presented on the last working day of February by the Finance Minister in the Parliament. Breaking the legacy, the government is all set to present the Budget on 1 February 2017 with an intent to complete the legislative exercise and approve the Finance Bill before the start of the Financial Year (FY) on 1 April.

Additionally, the decision of advancement of Union Budget was taken with the view to help ensure that the spending on schemes starts from 1 April to provide a boost to the economy. This was to cure the practice in the earlier years where spending would start after the first quarter of the Financial Year. From the perspective of the government departments, agencies and state owned companies it may help ensure that they get their full allocations to work with from the first day of the financial year. From the perspective of the taxpayers, they may get sufficient time and much required clarity in working out their tax planning and advance tax payment schedules based on tax proposals put forth.

While certainty, clarity and the timing might prove to be of advantage for the tax payer and the government, the availability of data and assessing the trends/projections may pose a challenge. To read the Budget on 1 February 2017 the preparations would have begun from as early as October 2016. The projections would have been made based on the data for the first six months of the Financial Year. To begin with data of less than six months and making projections for the next year and subsequent years may be a daunting task.

The elections of five states (Uttrakhand, Manipur, Goa, Punjab and Uttar Pradesh) are expected to be held in the coming months and the government is instructed to follow the Model Code of Conduct and not announce any scheme or incentive for these states. It needs to be considered whether such a condition could hamper the reforms that could be brought about in the five states through advancement of the Union and Railway Budget.

The merger of the Union Budget and Railway Budget was proposed by the Railway Minister and endorsed by the NITI Aayog (National Institution for Transforming India- Government of India’s policy think-tank established to replace the Planning Commission). The history of having separate Budget dates back to the British era. The idea was to have a focus on the most important infrastructure network of India then, which made up for substantial portion of the countries general budget. The NITI Aayog noted that in current times a distinct Railway Budget remained merely a practice/formality as the Railway Budget size had diminished relatively to the general Budget.

This will also save the time of the parliamentarians by not having to approve and pass two separate Bills. The railways were paying a dividend to the government for getting gross Budgetary support which will now be done away with, saving a huge amount of its financial resources.

The consolidation of the Budget raises a concern of decrease in the transparency of the railway accounts and their performance. A reduction in the allocation of funds to the Union Budget after the merger would mean a necessary similar cut in the allocation of expenses to the railways.

In view of the advancement of the Union Budget, there is a speculation in terms of whether there will be any change in the Financial Year to be in sync with the calendar year i.e 1 January to 31 December. No announcements have been made yet in this regard. Post demonetisation, all eyes are now on the measures that will be announced in the Union budget especially in terms of its effective and timely implementation.

All views or opinions expressed herein are those of the author and do not necessarily represent the views of KPMG in India.