The Making of the Budget

The Making of the Budget

K.M. Chandrasekhar

It is Budget time again and I thought I would devote my first weekly column in Pennews to my experiences in the making of the Kerala Budget and the Central Budget.

In my career, spanning half a century, the making of the State Budget and the Central Budget have loomed large at several points. As Secretaries in various line departments or as head of department, our role is essentially to try and get as much as possible on the expenditure side and to reduce taxation on products that our stakeholders produce. The device that we normally resort to is to ask for far more than we need or can possibly spend in the expectation that the Finance Department will anyway cut drastically so we may get what we really want even after the cut is applied.

In Kerala, there are two levels at which budget allocations are discussed and pruned. The first is the State Planning Board and then the Finance Department.

As head of department or as secretary of a department, one is required to go and explain to the Planning Board the rationale for the allocations sought and what returns can be expected from the investment. There are some departments which apply their minds to this exercise and propose more reasonable figures even though they would generally still exceed their spending capacity. There are others who merely multiply their previous year’s allocation by a factor of ten or more and present it before the Planning Board officials making a huge pitch, using all their powers of persuasion and their lung power.

There are departments too, which hard sell individual projects to their Ministers understating the costs and the period required for their implementation and sharply escalating the benefits expected from it. The Minister sees in such projects the potential for a grand inauguration and an equally impressive closing ceremony, both during his tenure, giving him brownie points for his next election. The project, once cleared, has to find a place in the Plan and the Budget and drags on and on for years and years. Much money is spent, many pockets are greased and, at the end of the day, benefits flowing to the people are much lower than was initially projected.

The great irrigation projects of Kerala are classic examples. The Muvattupuzha irrigation project, for example, was conceived in 1977 to conserve the tailrace waters of the Idukki hydel project and to make it available to farmers in three districts. The original cost estimate was ₹ 48 crore but, even after spending close to a thousand crore, it still remains unfinished, money still flows from the government exchequer and a large number of employees remain on the staff of the project. In the meanwhile, large swathes of the originally estimated ayacut area have now been converted for other uses and there is no further need for irrigation water in these areas. The same fate befell the Karapuzha and the Banasurasagar irrigation projects.

Kerala is by no means the only State where there is a yawning gap between promise and fulfillment. The Indian Express reported in April 2016 of 85 dams remaining incomplete for 30 years or more in Maharashtra. 515 dams in that State had run up a cost overrun of ₹ 45000 crores. The Accelerated Irrigation Benefits Programme of the Central Government was intended to benefit 149 unfinished projects in India, reaching water to 3.65 lakh hectares but, by February 2017, only 0.97 lakh hectares had been covered. The pace at which irrigation projects move is clearly a major stumbling block for all of India. While irrigation is a stark example of the gap between estimation and implementation, there are myriad other construction projects scattered across the country whose fate is similar.

I have digressed from my main theme regarding the making of the budget primarily because this is one of the major issues worrying the concerned administrator for which an administrative solution will have to be found sooner than later. When I was working with the Kerala Government in the eighties and nineties, the Planning Board and the Finance Department were less integrated than they were when I came back to the State in 2011 after a long, continuous stint of 15 years in the Government of India.

In the earlier days, the Plan was prepared without regard to the resources that the State could muster, which made it a bit irrelevant and divorced from reality. I remember how excited I was as Director of Fisheries when the Planning Board gave me what I had sought for my Department only to come down to earth when it was chopped to size by the Finance Department in the final budget document. By the time I came back, I found that the size of the five year plan as well as the annual plan was fixed by the Planning Board and the Finance Department jointly with the Chief Minister settling intractable differences if any arose.

The making of the State Budget was an elaborate exercise with all Departments providing their wish lists to me as Finance Secretary, and with the Finance Minister, first, CV Padmarajan and, later, when the government changed, T. Sivadasa Menon being constantly under pressure from other Ministers. While the Budget documents would generally correspond more to reality, the Budget Speech gives room to the Ministers to add new schemes, new expenditures for which new heads of accounts would have to be made by the Finance Department later. There is usually considerable divergence between the announcements made in the Budget Speech and the actual implementation later and it would be interesting if someone studied how many of the assurances made in the Budget Speeches of the last many years have actually been fulfilled. I did not see such divergence in the Central Budget until lately.

As Finance Secretary, I would generally sit in the official gallery whenever the Minister spoke and pass on chits to him to answer specific points. At all other times, while the debate on the Budget was on, representatives of the Finance Department would be present throughout to take notes for the Minister’s reply. In Kerala, MLAs used occasionally to take umbrage if the Secretary was not present in the official gallery. This never happened in the Lok Sabha or the Rajya Sabha as Members of Parliament are concerned only with happens in the House, not with the official gallery, which is legally and technically outside the House.

The Budget Speech in Kerala is an elaborate document as all Ministers in a coalition government want schemes pertaining to their own departments to be included in it. It was generally printed in the night preceding the presentation to ensure secrecy and proof reading was done by the Finance Secretary through the night. The role played by the Finance Secretary in the preparation of the Speech depended largely on the Minister’s trust in him or her.

In the Centre, I was the Revenue Secretary, dealing with taxation and enforcement issues which caused the highest amount of excitement in Parliament. The exercise of budget preparation would start months before it is presented. As Revenue Secretary, I had to meet a large number of stakeholders, including industry, trade and sectoral associations. I recall that, in my first year, 2004-5, I held 85 meetings, some of them scheduled even in the night. Officers in the Central Board of Direct Taxes and Central Board of Excise and Customs would also meet delegations and seek their suggestions. The vast amount of data thus generated would then be analysed in respect of revenue implications. The Minister would also hold meetings with captains of industry, with trade unions, with civil society organisations. In parallel, my colleagues in the Expenditure Department and the Economic Affairs Department would deal with other aspects of the Budget, the expected expenditure as well as the changes required in the financial and capital markets.

The Planning Commission was in existence then and it played a crucial role in ensuring that enough money, called Gross Budgetary Support, was sequestered for development. The quantum of the GBS invariably led to a heated debate between the Finance Ministry and the Planning Commission, the issue being finally decided by diktat of the Prime Minister. One of the greatest drawbacks of replacement of the Planning Commission by the NITI Aayog is that this debate, which ensured sufficiency of funds for development, no longer takes place.

Once the budget exercise starts, the Finance Ministry is closed to even the accredited media representatives. A whole section of Revenue Department offices in North Block would be electronically accessible only to select officers actually dealing with tax matters. Special sanction is given to them to order food from wherever they liked and for their transport as they would usually have to sit until the early hours of the morning, seven days a week, something which I, as Revenue Secretary, also had to do.

Obviously, at the end of the day, the wish list would be enormous and the resources inadequate. An activist Finance Minister, like Chidambaram, would play a dominant role in the budget process and try to squeeze more money out of the Revenue Department and beat down expenditures proposed by the Expenditure Department. The Prime Minister, assisted only by his Principal Secretary and his Private Secretary, would be briefed at each stage and his approval taken. A process of prioritisation would inevitably take place to match revenue with expenditure and to make the fiscal deficit as low as possible..

Once the Finance Bill, containing tax changes, is prepared, it is taken to the Law Ministry, where it is subjected to intense and continuous scrutiny lasting a couple of days and nights. Chidambaram, a reputed tax lawyer himself, would go through it line by line.

After the papers are completed, they go to the Central Government Press in North Block. The printing starts with a halwa ceremony. The Minister and the Secretaries, the officers involved in the budget preparation exercise and the employees of the press, eat a plate of halwa made inside the press itself and have cups of tea. Once the printing starts, all employees of the press are locked in and arrangements made for their stay within the premises.

On the evening before the budget presentation, there is another traditional function when groups of media persons take photographs of the Minister giving “finishing touches” to the budget along with the Ministers of State and the principal officers in the Finance Ministry. Another ceremonial practice is the Finance Secretary calling on the Prime Minister and taking his approval formally for the Budget and the Budget Speech. The Budget Speech was prepared by Chidambaram himself but portions relevant to them were shown to the Secretaries concerned and their views considered.

The next day, at 9.30 in the morning, the Minister, together with the Ministers of State and Secretaries would call on the President of India and briefly indicate to him the highlights of the proposed budget. From there, we would drive to Parliament House where the Minister would have to squeeze his way past throngs of media persons and photographers. There would then be a formal meeting of the Cabinet where the budget would be approved. He would then proceed to the Lok Sabha where, at 11 sharp, he would rise to present the Budget for the year.


Former Union Cabinet Secretary, presently, Chairman, Centre for Development Studies, Trivandrum

(The facts and views expressed in the article are those of the writer.)