
In a few days from now, Nirmala Sitharaman will present her eighth budget, a record for an Indian finance minister. Most of her budgets were presented when the BJP had an absolute majority. In 2024, the situation changed and the words “Andhra” and “Bihar” were repeatedly mentioned in her budget speech.
Her budgets have generally been corporate-friendly. She clearly believes that if the rich get richer, some part of it would trickle down to the less fortunate through increased investment. The corporates failed her. At a meeting with business people in 2022, she said, “Since 2019, when I took charge of the finance ministry, the industry doesn’t think [the climate for investment is] conducive. Alright, the [corporate] tax was brought down. I keep defending industry even when people provocatively ask me what I would like to tell the private sector.”
The finance minister’s decisions depend on numerous inputs. The budget preparation exercise would have started months earlier, perhaps in September or October. As revenue secretary from 2004 to 2007, I recall meeting a large number of stakeholders including from industry, trade bodies and sectoral associations—as many as 85 in my first year, 2004-5. Officers in the Central Board of Direct Taxes and Central Board of Excise and Customs would also meet delegations and seek their suggestions.
The vast amount of data thus generated would then be analysed with respect to revenue implications. The minister would also hold meetings with captains of industry, trade unions and civil society organisations. In parallel, colleagues in the expenditure and economic affairs departments would deal with other aspects—the expected expenditure, and the changes required in the financial and capital markets keeping in view the global trends.
The Planning Commission was in existence then, and it played a crucial role in ensuring that enough money, called gross budgetary support, was sequestered for development. The amount of support invariably led to a heated debate between the finance ministry and the Planning Commission, with the issue finally decided by the diktat of the prime minister. One of the most significant drawbacks of the replacement of the Planning Commission by the Niti Aayog is that this debate—which ensured sufficiency of funds for development and close contact with the state governments—no longer takes place.
Once the budget exercise starts, the finance ministry is closed to even accredited media representatives. A whole section of the revenue department offices in North Block would be accessible only to select officers who would be dealing with tax matters. Special sanction is given to them to order food from wherever they like and for their transport, as they would usually have to sit until the wee hours of the morning, seven days a week. Those who wax eloquent nowadays about 70-90 hour weekdays and total cessation of family life would be pleased with our budget makers.
Obviously, the wishlist would be enormous and the resources inadequate. An activist finance minister would play a dominant role in the process, try to squeeze more money out of the revenue department and beat down the expenses proposed by the expenditure department. The prime minister, assisted only by his principal and private secretaries, would be briefed at each stage. A process of prioritisation would inevitably take place to match revenue with expenditure and keep the fiscal deficit as low as possible.
Once the Finance Bill, containing the tax proposals, is prepared, it is taken to the law ministry, where it is subjected to intense scrutiny lasting a couple of days and nights. In my time, P Chidambaram, a reputed tax lawyer himself, would go through it line by line.
After the papers are completed, they go to the Central Government Press in North Block. The printing starts with a halwa ceremony, where the minister, secretaries and officers involved in the exercise as well as the press employees would be present. Once the printing starts, all employees of the press are locked in, and arrangements are made for their stay on the premises.
On the evening before the budget presentation, there is another traditional function when groups of media persons take photographs of the minister giving “finishing touches” to the budget along with the ministers of state and principal ministry officers. Another ceremonial event is when the finance secretary calls on the prime minister and takes his approval formally for the budget and the speech. Chidambaram himself prepared the Speech, which used to be short, but other finance ministers may follow different modalities.
The next day, at 9.30 am, the finance minister, together with the ministers of state and secretaries, would call on the president and briefly explain the highlights. From there, they would drive to Parliament House. There would then be a formal meeting of the cabinet where the budget would be approved. The finance minister would then proceed to the Lok Sabha where, at 11 sharp, the presentation would start. It’s presented in February—on the 28th earlier, the 1st now—so that it can be approved before the next financial year, a salutary practice that gives implementing organisations time instead of having to work with a vote on account for the first quarter.
This time, the finance minister would need to look seriously at the demand side while formulating her budget. India is on the cusp of a slowdown similar to the one we had pre-Covid. At that time, the response was a sizeable cut in corporate tax on the fiscal side and a far more liberal monetary policy.
With inflation high, there is not much room for monetary gymnastics, as it could weaken the rupee further and damage the stock markets as foreign institutional investors pull out. The banking sector is presently more cautious about retail loans; there have been several cases in the recent past of swelling bad retail debt to asset reconstruction companies.
The way out seems to be through measures to stimulate demand, as happened during the Great Recession of 2008-9, so that investment appetite improves. Flexibility in policymaking is the need of the hour.
(Views are personal)
K M Chandrasekhar
Former Cabinet Secretary and author of As Good as My Word: A Memoir
(kmchandrasekhar@gmail.com)