Advancing Budget Date Will Allow Firms More Time To Plan

The changes mean that Parliament will meet earlier than normal and approve the budget before the financial year ends on March 31

21/09/2016 6:21 PM IST | Updated 21/09/2016 6:26 PM IST
Adnan Abidi / Reuters

India aims to advance its budget announcement to give companies more time to adapt business and taxation plans, scrapping a colonial-era tradition of presenting accounts at the end of February.

Prime Minister Narendra Modi's cabinet also approved merging the nation's federal and railway budgets, which were so far announced on two separate days, Finance Minister Arun Jaitley told reporters in New Delhi on Wednesday. The government will abolish classification of expenditure under so-called plan and non-plan heads.

"In principle, the government is in favor of advancing the budget date," Jaitley said, adding that the specific date will be decided after consultations with state governments.

The changes mean that parliament will meet earlier than normal and approve the budget before the financial year ends on March 31, rather than the typical May clearances. Ministries and companies would have more time to finalize fund allocations for the new fiscal, as well as prepare their books for a landmark national sales tax.

Removing the distinction between plan and non-plan expenditure will also simplify the budgeting process and help economists better calculate the impact on growth. The move follows Modi's scrapping of the Planning Commission, a body that recommended Soviet-style five-year plans and accounted for these separate from India's other spending.

"We will get much better clarity on expenditure pattern and prioritization of expenditure," said N.R. Bhanumurthy, an economist with the National Institute of Public Finance and Policy, a government-backed research group. "This will be a very significant reform."

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