Posted On Saturday, February 18, 2012 at 07:31:15 AM
The Finance Minister will present the Union Budget to Parliament on March 16 this year. Traditionally it has always been presented on the last working day of February. This year the date had to be postponed because of ongoing elections in Goa and Uttar Pradesh for their respective Assemblies.
|The RBI’s annual monetary policy is on March 16, a day before the Budget is announced
Those elections and counting will not be over before February 29. (No, the Union Budget would not have been postponed if Mumbai’s municipal elections were held in March. Mumbai may be the financial capital of India, but is not that sensitive to cause a shift in the Budget date).
Uttar Pradesh is a state with about 17% of India’s population. Any policy announced in the Budget is sure to affect the state. If a special loan waiver package is announced for farmers, that will be seen as a sop to attract votes.
During the elections, the code of conduct prohibits the government from announcing any schemes or policies that might benefit the electorate. This is seen as an unfair tactic to attract votes, and the party in “power” i.e. running the government cannot use this unfair advantage.
The code of conduct comes into force the day the elections are announced. Hence many state governments rush a slew of announcements and sops just on the eve of election date announcement.
The “largeness” of UP caused the Union government to forbear on all the goodies that they might release in this year’s Budget. Hence for the first time in our recent history, the Union Budget will be presented on March 16. The separate Railway budget will be presented on March 14, and the economic score card for the previous year, the Economic Survey will be tabled in Parliament on March 15. Such is the power of UP.
But this leads to a rather curious situation for next year’s monetary policy, which is in the hands of the Reserve Bank of India. Every year during middle or third week of March the RBI announces the annual credit and monetary policy for the entire fiscal year (starting April and ending in the following March).
This RBI policy contains the target growth rate for money supply next year, the deposit growth, the estimated inflation rate, the target for growth in non-agricultural credit and several other economic variables. The RBI bases its projections and policy based on the current economic context (both globally and domestically), and its assessment of the future outlook.
One of the most important inputs that the RBI uses is the fiscal stance of the Government of India. It must know what is the fiscal deficit next year, what are the special tax incentives, what is the target for disinvestment, what are the prospects for capital and stock markets. It must also factor in major economic reforms that may be undertaken during the course of the year.
For example, should the RBI count the revenue likely to come from the auction of 2G spectrum? How many Public Sector Companies will be coming for an IPO? How much stake dilution will there be? All this information would be contained in the Budget proposal of the Finance Minister, which won’t be ready till March 16.
However, the date for RBI’s annual monetary policy is March 15 (as of this writing). Hence apart from clever economic models and analysis, the RBI will also have to exercise clairvoyance and mind-reading to be able to come up with a policy that is consistent with the fiscal stance, which will be revealed only 24 hours later. (Who knows, there may be several roll-backs of budget proposals too!)
Hence there are three possibilities: (a) monetary policy date will be postponed; (b) RBI will have secret advance insight of the Budget (dangerous! and possibly illegal); or (c) RBI will fly blind.
Interesting times ahead for monetary and fiscal policy tango.
Vote’s up, Pune
This is with reference to ‘Will 80 per cent show up?’(PM, Feb 11). Pune had a 51% turnout on Thursday, which is by no means a good sign for a city that has so much to complain about. The trouble, as pointed out by many, is that it will always be the poor, the less-educated who queue up to cast their vote.
Enticed by money and false promises, they are the ones who make the effort to exercise their right as citizens. In my own housing society, the domestic help was far more enthusiastic than the residents. Most of my neighbours (and even I) would rather sit around and bemoan everything that is wrong with Pune.
- Supriya Godbole