The importance of the interim Budget

Jaswant Singh is not the first finance minister who broke with tradition and stumped everyone around him by unveiling, last week, a sort of a mini-Budget in two installments. Yashwant Sinha achieved a similar feat, although under different circumstances and as finance minister of a different regime.

In December 1990, the Indian economy was reeling under the impact of the Gulf crisis. The fiscal deficit was rising and the balance of payments deteriorating at a rapid pace.

Sinha, as finance minister of the Chandra Shekhar government, had no option other than announcing a series of customs and excise duty changes to mobilise more revenue. He even levied some surcharge on direct tax rates, forcing companies and individuals to cough up more taxes for the whole year.

There are four crucial differences between what Sinha did in 1990 and what we saw last week. One, the effort in 1990 was to raise more revenue, but Jaswant Singh decided to lose revenue by offering tax concessions and commit more resources for various development projects.

Two, the magnitude of the tax mobilisation effort in December 1990 was relatively small compared to the tax concessions and the expenditure splurge in January 2004. Three, the new tax measures in 1990 were prompted by an economic crisis, while Singh announced his measures to enhance the feel-good factor already prevailing in the Indian economy.

And four, Yashwant Sinha levied those additional taxes in the hope that he would be presenting a regular Budget in February 1991 "" a hope that was belied later as a result of unforeseen political developments.

Eventually, he had to present an interim Budget. Singh, on the other hand, planned the mini-Budget precisely because he realised he could not present a full Budget and that he would have to settle for an interim Budget instead.

Which is why the excitement that we saw last week in the wake of the Rs 12,000-crore tax concessions is likely to continue for some more time, at least till Singh presents the interim Budget.

In fact, the interim Budget has now acquired even more importance after the announcement of the indirect tax changes and expenditure allocation for new development projects.

The documents that are usually made available at the time of the presentation of the interim Budget will throw light on the government's revenue numbers for the current year and also the impact of the tax concessions and additional expenditure on the government's fiscal position during the next financial year.

In other words, not only will you get to know the revised estimates for the government's expenditure and revenue in 2003-04, but also the Budget estimates for its revenue and expenditure for 2004-05. Since the customs and excise duty changes have already taken effect and the impact of the new expenditure should be felt during the whole of next year, the revenue and expenditure numbers for 2004-05 should reflect the entire exercise.

Quite ironically, therefore, the interim Budget without such a mini-Budget would have produced quite a colourless document.

There will be other pointers as well in the interim Budget documents. The government will be completing the offloading of 10 per cent shares in Oil and Natural Gas Corporation and Gas Authority of India Limited only by the last week of March.

This is an exercise that will fetch at least Rs 12,000 crore for the government. It will be interesting to see what figure the government puts in the revised estimates for proceeds from disinvestments during the current year.

Equally important will be the disinvestments proceeds target for the next financial year. Don't forget that the government will surely go in for the disinvestment of its stake in Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) next year.

Most importantly, the interim Budget will be an occasion for Singh to wax eloquent on the successful management of the economy by the government, particularly under his stewardship of North Block.

Thanks to the sharp growth of GDP during the current financial year to over 7 per cent, the government may actually be able to bring down the fiscal deficit from what was projected last February, when the GDP estimates were lower than the current projections. That will be an achievement no finance minister could claim in recent times.

And, of course, Singh will have his interim Budget speech that would present his vision of the Indian economy in the coming year and how he would like that to grow. If, however, there is one problem or a risk in the entire interim Budget exercise, it is this.

Don't forget that the government will have to come out with a regular Budget after the elections "" most likely in June. The regular Budget will have to present not only an economic survey, but also new documents containing the government's figures on its revenues and expenditure.

The discrepancies between the figures being dished out in the interim Budget now and those that are eventually rolled out in the regular Budget in June would be the first opportunity for Singh's critics to pounce on him.

That is why, the interim Budget exercise will continue to offer more excitement for those who are keenly watching the developments on Raisina Hill.