Nowhere else in the world do budgets—both of the Union and states—attract as much attention as in India, although everyone agrees that the Budget is, at best, an estimate of earnings and expenses. Either of the two can tilt the scales of fortune for the states. Capital formation, investment growth, savings and consumption indices, growth projections and fiscal deficit boundary can all influence the Budget outcomes at the end of the year.
The micro, small and medium enterprises (MSME) committee (UK Sinha, chairman), in its submission, made a very valid recommendation recognising that general financial rules needed to change if the fortunes of MSME vendors were to change: “The Committee recommends that the General Financial Rules (GFR) and Departmental Procurement Codes/ Manuals, as the case may be, be amended to prohibit placing of purchase orders in excess of the annual budget approved by the Legislature/ Government.”
Just look at the RAMP (raising and accelerating MSME productivity) scheme announced in the Union budget 2022-23. Until now, there have been no releases under the scheme although the scheme outlays are fortunately continuing in the budgets of the current year and the funds are not lapsed. However, the ministry of micro, small and medium enterprises (MoMSME) has mastered the art of complicated sanction and release under the scheme.
First, the state governments should send proposals. The MoMSME would screen the proposals from the standpoints of the availability of resources and the willingness of the states to (1) earmark 10% of the sanctioned amount and (2) agree to appoint a consultant to monitor the schemes approved under RAMP. RAMP outlays are generally sanctioned for three to four years, with specific outlays for each sub-scheme and the year.
While the states have been communicated of the sanctions during FY23-24, the other formalities have not been completed. The states should show in their budgets the 10% sanction against this scheme. Hopefully, during FY24-25 state budgets, the states will show such allocation by creating a special accounting head.
Most of the MSMEs supply goods and services under the market assistance and public procurement schemes. While the supplies are made, most state governments and even the Central government have not been making payments against the supplies promptly. These MSMEs do not have the muscle to fight with the government lest they miss the orders from the disputant departments for the future. Some of the cases filed against some government departments in the MSE facilitation council bear evidence of the delays from the government and they are available on the MSME Samadhan portal.
Let me explain from my own experience in different institutions, the way departments formulate and release budgets. At least a couple of months before the annual or even interim budgets, each department should submit a review of the budget and raise the demand for the next year under different budget-heads with the concerned principal secretary or secretary of the government. This paper will be processed in the secretariat taking into consideration the performance of each department. The principal secretary would thereafter convene a meeting of the heads of departments to rationalise their submissions. He will consider the sectoral implications for generating growth impulses in the economy and prune the targets set in the Budget.
The finance and planning department, which has the main responsibility for formulating the state budget, will have consultations with the advisers to the government and intense discussions with each department and the concerned ministers based on such consultations. Thereafter, it places before the finance minister and the chief minister the prospects of raising revenue under the macroeconomic situation that is broadly governed by the finance commission’s recommendations. The ability of the state to borrow from financial institutions under various long gestation projects and raise public debt will be decided on the ability to repay such debt and its implications to the citizens of the state.
It is not uncommon for the finance secretary to provide for future allocations based on past performance, irrespective of the constraints on past performance for fully availing the allocations in the year. He/ she may agree to an increment in the outlay marginally in several cases. All major projects like irrigation, road development, social security, subsidies and incentives will be as decided by the chief minister after consulting his Cabinet.
Thus far, it is fine. When it comes to the question of releases, the process is long and arduous. It is subject to inordinate delays and the digital economy gains show no presence there. Once the budget is allocated after the assembly gives assent to the concerned departments, which is put on the website, the department will have to raise its demand every quarter. After administrative clearance is provided by the principal secretary, it is sent for a budget release order (BRO).
After the BRO is issued in consonance with the approved allocation, it is sent to the concerned departmental head. Within the BRO, when the related subsector’s demand is to be released, it calls for the utilisation certificate (UC) and advanced receipt (AR). The finance department will thereafter issue a token for the release of the amount.
After the token number is received, a note is put up for sanction to the concerned commissioner. After the note is approved, along with the UC and AR the cheque for release is put up for signature. If the BRO consists of multiple parties, cheques are not issued against each party but against ‘multiple parties’ attaching the list to the cheque.
This cheque would be sent to the treasury who, in turn, will forward the cheque for consent for release to the finance secretary again. Depending on the position of funds, the finance secretary would give consent or hold up the cheque. At each of the stages of release, chasing is imperative and still the amount may not be released as, at the time of consideration for release, the priorities of the government may change.
It should go to the credit of the direct taxes department of the Union ministry of finance, that many of the procedures—filing returns on the prescribed forms, dates of filing, flexibility, penalties for failure, and release of claims—have been streamlined for the income-tax department (ITD). The ITD has even been sending silver badges for the prompt filers and payers, and the claim settlement period for refunds has now come down to 15 days. The result is seen in the mop-up of 20% over the budgeted level.
In regard to GST, the glitches still continue. The rules, procedures and claims seem to be still evolving. This budget may see some announcements regarding the rate structures, rules and procedures streamlining the GST and reverse tax payment mechanisms that would give comfort to the manufacturers.
Proposals per se in FY24-25 budget
1. Securities transaction tax rates in India have scope for painless revision.

Both the sale and purchase of securities are done with an eye on the benefit of the transaction. The buyers would like to gain at a future date and the sellers would like to gain over their purchase price. In a sustainably growing economy like ours, the share market prices oscillate over a band and, depending on the judiciousness of the player in the share market, the gains will move back and forth. The tax on the share transactions being digital in nature, the tax collection does not have any administration costs. It is time that the finance minister Nirmala Sitharaman takes the courage to tax all the share transactions by a simple 1% on every buy and every purchase. Here, the question of options and futures does not arise. She may give an immediate jolt to the markets but they will settle down within no time. The advantage will be that the Central government will have liquid tax earnings every day into the treasury.
2. It is time she also takes the courage to tax farm income from agriculture at the threshold of Rs25 lakh and index those for the future against inflation and allied activities if exclusive for a farmer can be taxed at the threshold of Rs30 lakh.
3. Convince the states to rationalise market cess so that digital market access becomes easier. The farmers who go to the streets would be big farmers and not the millions of marginal and small farmers. She may also announce the minimum support price for some more commodities that could include millets. Farmers need assured income in their hands to pursue their farm operations unhindered and a 4% - 5% growth in agriculture annually will assure the overall GDP growth of 8% per annum because of the cascading effect such an action will have in the manufacturing sector.
4. All the farmers who go in for improved technologies like nano fertiliser application, reduction in fertiliser and pesticide consumption, purchase of AI-based technologies like the robots and aero sprayers can be incentivised at the point of purchase through a reduction in the GST by at least 1% and can even be waived altogether.
5. MSMEs: The finance minister should insist on all the ministries that have announced incentive schemes to present the outcome-based performance of such incentives up to the end of November every year to Parliament through independent survey/research studies every January as the Budgets are presented in February. This would help her in giving better allocations to the enterprises.
6. The FM should think of announcing incentives to the large and medium-sized corporates that invest equity in their front-ending supply chain micro and small enterprises to enable scaling up.
7. It will be difficult to expect the public sector banks (PSBs) and large private sector banks like HDFC Bank, ICICI Bank, Axis Bank and Yes Bank to engage the micro and smaller among the small enterprises to engage, communicate with them periodically and meet their credit requirements. If the FM announces a 2% income-tax relief to the cooperative banks, small finance banks (SFBs) and rural banks and banks specially opened to serve the MSMEs, the lending portfolio for these MSMEs will accelerate as both adverse selection and information asymmetry that haunt the lenders can be avoided.
8. Similarly, some tax relief can be given to those institutions—banks and NBFCs—that lend to introducing superior technologies (no technology would sustain for more than three years) periodically at softer rates of interest—simple rate of interest as decided by the Indian Banks’ Association (IBA) in consultation with the participating banks.
9. Any enterprise scaling up from micro to small and small to medium after its existence for five years with full tax compliance and financial regulatory compliance can be incentivised for a period of one year, a percentage relief in GST. No cap is desirable as each product will have its own boundaries of compliance.
10. Securing land for the construction of a factory for micro or small enterprise –500 - 2,000 square yards—has become very costly throughout the country because of the competing demands on such land due to the most facilitating infrastructure projects, real estate and other projects. Although this falls within the ambit of the state governments, the FM can take the lead in announcing relief for flatted industrial estates and open flats up to 2000sqft in the Union territory giving a lead to the states.
The 16th finance commission proposals, which would become effective from 2026, will have its hands full when this Budget gives some leads that would make Viksit Bharat truly self-reliant, sustainable and competitive globally. I have not touched trade and services deliberately as manufacturing growth would give them enough fillip.
(The author is a retired senior banker, economist and risk management specialist)