Budget…and all that Jazz!

My first encounter to India’s Annual Budget (event) was in 1997 when the then Finance Minister, Chidambaram’s ‘Dream Budget’ was 13-Budget-box-IndiaInk-slide-Q99W-articleInlinetelevised live. I sat right in front of the TV with a notepad and pen to write about “my findings”…like I was some investigator solving an Economics’ puzzle. I didn’t understand the importance of the hype created behind this speech. Was it because it was televised live or was it because  India’s economy was ready for an economic boom or was it because this was my first attempt to relate the economic affairs of our country with everything I was learning about economics?

confusedbjIt was definitely, a hype! And, I can easily say that today. But in 1997, I was embarrassed to admit that I understood nothing about Chidambaram’s passionately articulated speech, which left me confused. Luckily then, I also had (and still have) honest friends, who felt the same way; they too, considered this event to be a marketing gimmick by a new or existing government.

So here are some pointers you need to consider before feeling confused about the budget.

  1. The annual budget is a plan. A plan for how much money will be allocated to execute and implement many schemes
  2. This scheme can be anything that can affect the whole economy like plans for infrastructure, hospitals, etc. OR schemes for specific sectors like Power and Defense or for all businesses like the implementation of Goods and Service Tax (GST) OR for a specific cause like the “Beti Bachaao, Beti Padhaao”
  3. The plan does NOT in any way influence growth and development of the economy during announcement. It may NOT even influence growth and development during that year either (Refer to Trickle-down Economics blog)
  4. Since it is a plan, it goes through a process of approval (by the majority) in the Lok Sabha and Rajya Sabha
  5. Once the budget is approved at the central level, the same process is continued at a State level. The approval is based on the state finances and how much states’ can budget them for implementation
  6. Accordingly, all schemes under the budget may or may not get approved at the Centre and/or at the State level
  7. Schemes that are approved across centre and states may not be allocated the budgeted amount because the budget plan does not include the money allocated for planning, execution, resources involved, monitoring and (pre and post) evaluation. Nobody knows how much money is really invested until economic surveys are published the following year which again provide estimates (Refer to Trickle-down Economics blog)
  8. It is a marketing gimmick because various socio-economic facts provided by the Ministry of Finance, Planning Commission, etc are supplemented with the budget, making it seem like our state affairs and relationships between governments within India and between countries abroad are happy and supportive. Reality is it creates a speculative environment of confidence which has never existed between ministers in India or abroad
  9. The stock market indices falling or increasing rapidly during the budget announcement is the investors’ way of expressing their confidence about the budget. But they are in NO WAY reflective of what 1.2 billion Indians feel. Stock market’s reaction must be always taken with a pinch of salt.
  10. Annual budget is also not a reliable source for determining whether India will experience good times or bad times. Economic fundamentals of the country should be cross-checked from newspapers, journals, articles, government websites and most of all keeping yourself updated with your surroundings regularly to understand economic conditions of our country is a necessity

My verdict: A slowdown in the economy was looming around India even before the new government’s budget speech. Let’s hope the plans get implemented


By Bhakti Joshi