Why The Modi-Jaitley 2017 Budget Is Likely To Be A True Blockbuster

With Prime Minister Narendra Modi holding his first meeting with ministers and officials yesterday (31 August) on the next budget, it is clear that he means business.

Here’s why Budget 2017-18 will be a blockbuster. It will be the second-last budget by the National Democratic Alliance (NDA) government before the 2019 elections. The last one will probably follow the usual formula of being populist before an election.

Budget 2017-18 will be the first one in independent India to be presented in the month of January. The idea behind it is that it can be passed by the end of March, before the start of the next financial year on 1 April 2017. Normally, budgets get passed only by mid-May, which means one-and-a-half months pass by in the financial year by the time the budget become official. If the budget is passed by March, there will be no need for a vote-on-account for the first two months of the next financial year. Appropriations for the next year will come from the actual budget.

Second, the Union Budget 2017-18 will incorporate the railway budget – another first for a Union budget in India. This means the main budget speech will have to include large announcements about railway plans and investments and any proposals to raise fares or freight rates.

Third, this will be the first budget without a special focus on five-year plans. The 12th five-year plan ends on 31 March 2017, after which there will only be annual capital and revenue outlays, no details about plan and non-plan expenditure. Niti Aayog, which has replaced the Planning Commission, is preparing vision plans for implementation across timeframes of three years, seven years and 15 years. There will be no five-year plans.

Fourth, and most important, there is the GST – the goods and services tax. One can’t be sure that all states will have agreed on GST rates by the end of January, or even that the infrastructure to launch the GST from 1 April 2017 will be ready at all ends (centre, states and businesses), but at the very least we will get a final GST implementation date and some core ideas about the GST Council, the likely standard (middle) rate and the dispute settlement mechanism.

Fifth, we may also have a new fiscal roadmap. A committee headed by N K Singh is reviewing the Fiscal Responsibility and Budget Management Act, and the chances are that the fiscal roadmap will be changed. This may be needed since 2016-17 has high spends on the Seventh Pay Commission, among other things, and the fiscal deficit in the first four months of the year (April-July) has already touched 74 percent of the annual total.

Budget 2017-18 will thus be a blockbuster, but we cannot presume the ones to follow will be that momentous. Reason: once the GST is rolled out, key indirect tax taxes will be decided in the GST Council. The budget speech may no longer dwell on detailing product-by-product tax rates.

After the blockbuster, we will therefore see thinner and duller budgets. The fun shifts to the GST Council.