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Politics

Indian budget coming one month early on Feb. 1

Early announcement has political as well as economic aspects

Finance Minister Arun Jaitley will present his budget to India’s parliament four weeks early on Feb. 1 this year. (Press Information Bureau)

NEW DELHI -- India is this year breaking with tradition and presenting the national budget on the first day of February instead of the last.

The national financial year begins on Apr. 1, and the early budget is intended to ensure ministries and departments get prompt access to funds, carry out plans expeditiously, and make full use of the first quarter.

When Prime Minister Narendra Modi met economists last month, he told them that the timing of the budget cycle has an effect on the real economy.

"In our existing budget calendar, the authorization of expenditure comes with the onset of the monsoon [in June]," Modi said. This makes government programs "relatively inactive" in the productive pre-monsoon months.

Opposition parties have objected to the early budget because of elections due between Feb. 4 and Mar. 8 in five of the country's 29 states - Uttar Pradesh, Uttarakhand, Manipur, Punjab, and Goa. They fear any populist measures announced could sway voters in favor of Modi's ruling Bharatiya Janata Party (BJP).

The election commission has responded by barring the government from proposing schemes specific to any of the states with polls due "in the interest of free and fair elections and in order to maintain [a] level playing field".

"It may be ensured that in the budget speech, the government's achievements in respect of said five states will also not be highlighted in any manner," the election commission said.

Uttar Pradesh, with a population of 200 million, is the most crucial politically of the five states concerned since a victory there would improve the BJP's prospects in the 2019 general elections. The state is currently ruled by the opposition Samajwadi Party, and accounts for about one-sixth of the 545 seats in the lower house of parliament. In the 2014 general elections, Modi's BJP and its allies won an overall majority with 336 seats.

Results for the five states will be announced on Mar. 11. The outcome will also alter the numbers in the upper house of parliament, where the BJP does not enjoy a majority. This has proved an obstacle to important reforms, including the introduction of a goods and services tax.

On Monday, the country's top court rejected a petition filed by a lawyer seeking postponement of the budget until state elections are concluded.

Merging rail budget

In another first also originally announced on Sept. 21, the railway budget is being merged with the general budget. The presentation of the railway budget separately, usually a few days before the main budget, started under British rule in 1924, and was maintained after independence in 1947.

A unified budget will save cash-strapped Indian Railways, which carries 23 million people each day, about 100 billion rupees ($1.47 billion) in annual dividends to the government. The railways meanwhile retain autonomy to raise extra resources.

The unified budget brings the railways into the picture, and better reflects the government's overall financial situation. It improves multimodal transport planning between the departments of highways, railways, and inland waterways; and gives the finance ministry "greater elbow room" for resource allocation, Rajen Gohain, the junior railways minister, told parliament in November.

Demonetization

The budget comes within three months of Modi's government scrapping 500- and 1000-rupee banknotes in a lightning move against untaxed wealth, corruption, and counterfeit currency. The financial ambush sucked some 15.4 trillion rupees from the economy - or 86% of the cash in circulation. Although effective, it was highly disruptive because cash transactions account for about two-thirds of India's gross domestic product.

The World Bank has this month lowered India's growth forecast for the financial year ending in March to a "still robust" 7% from an earlier estimate of 7.6%, and cited the demonetization as one of the factors.

Observers are waiting to see what measures will be proposed on Feb. 1 to accelerate growth, particularly in the large agriculture sector. The government is expected to announce benefits to individual taxpayers. One possibility is that the personal tax-exempt threshold of 250,000 rupees annually will be raised. Measures are also expected to help the cash-reliant real estate sector, which was particularly hard hit by the demonetization.

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