The budget cycle in India corresponds with the annual financial cycle which gives estimates of expenditure & receipts of the government finances.
Along with the budget, the FRBM Act, 2003 also mandates a medium-term fiscal policy statement, a fiscal policy strategy statement, and a macro economic framework statement.
Recent reforms done in the Budgetary cycle:
- Advancement of the Budget cycle to February 1.
- The merger of the rail budget with the general budget.
- The merger of planned and non-planned expenditure.
Issues with Annual Budgetary Cycle:
- Absence of correlation between expenditure and actual implementation during the financial year.
- Inadequate adherence to “multi-year” perspective and missing “line of sight” between plan and budget.
- Ad-hoc project announcements which are not included in the budget are regularly made during the year.
- Expenditure pattern remains skeed with “budget rush” during the last quarter.
- Focus remains on inputs for projects, departments, and schemes without adequate analysis of outcome and other financial risks involved.
- Delay in implementation of projects and focus remain on short-term goals.
Need for a medium-term fiscal framework:
- To give effect to long-term planning, taking into consideration the long gestation period for various infrastructural and capital-intensive projects.
- To have enough space to accommodate needs and time-based schemes and projects announced throughout the year without effective fiscal mismatch.
- To avoid sudden and frequent changes in various macroeconomic fundamentals like inflation, interest rate, etc.
- A medium-term fiscal framework with a three-year rolling plan can give scope for planning related to larger import expenses, e.g Petroleum, strategizing government’s subsidy bills.
- It can also help plan sources of revenue and estimate appropriately fiscal deficit and debt sustainability.
Hence, the medium-term fiscal framework can help the government plan and strategize its revenue and expenditure without having to rush through various populist measures for economic and political sustainability.