Evolution of Budgets

KAKALI DAS

In 1859, shortly following the first war of independence, British control over India trembled. The rebellion had been suppressed, yet lingering questions persisted.

In response, Queen Victoria dispatched a fresh officer to India – tasked with restoring order, particularly in financial matters.

This officer, James Wilson, previously a British MP in the House of Commons, resigned upon Victoria’s request and sailed for India. Upon arrival, Wilson diligently undertook his mission: to create a new tax system and attempt the introduction of paper currency.

In 1860, he presented a budget, distinct from contemporary ones in scale but marked by a significant transformation. James Wilson implemented a notable change by introducing income tax collection. Individuals seeking more than ₹200 were required to pay taxes under this rule.

Wilson harboured numerous ideas in the pipeline, but tragically, that very year, he succumbed in Kolkata. Speculations circulated about his final words, with reports suggesting he uttered, “Take care of my income tax.” And indeed, that’s precisely what happened.

Budgets became a fixture in India, persisting even after independence, undergoing numerous transformations. While today’s budget vastly differs from the colonial era, the question arises: When did the practice of governments preparing budgets first commence?

“During the 18^th century, ministers of the crown transported their expenditure plans to parliament in a substantial leather bag. Interestingly, the term “budget” originated from this bag itself, not the papers it contained. Derived from the Latin word “bulga,” the French term “bougette” meaning a bag or pouch evolved. Eventually, the term “budget” emerged from “bougette.””

Although the term “budget” is relatively recent, the practice itself dates back to ancient empires such as the Egyptians and Babylonians.

Ancient Egypt, often referred to as a command economy, witnessed Pharaohs exerting control over various aspects – from grain supply and barter systems to canals. In such a structured system, the necessity for a budget was evident.

Likewise, the Romans, governing a vast empire, found the need for a budget. By 150 CE, their substantial income comprised around 12,000 kilograms of gold and 6,000 kilograms of silver, primarily sourced from wars and tributes.

However, Rome’s fiscal health wasn’t always robust; circa 60 BC, the budget was in crisis due to excessive debt and insufficient income, leading to a sinking Roman economy.

Then entered Julius Caesar, who ushered in a era of increased fiscal responsibility in Rome. His successors furthered these efforts by introducing income tax, a pivotal measure that played a role in balancing Rome’s books.

Indian empires, including the Mauryan Dynasty, adhered to budgetary practices, influenced notably by Kautilya’s “Arthashastra”.

Under the governance of Chandragupta Maurya, the Mauryan revenue system featured elements such as a common tax regime, routine crop collection, and the implementation of a unified currency system.

Upon Ashoka’s ascent to power, with trade on the rise and increased infrastructure demands, allocations were akin to contemporary practices. Funds were earmarked for the construction of roads and waterways. Subsequent empires, notably the Mughals, refined these strategies.

Akbar, in particular, implemented a robust fiscal policy, driven by the compelling circumstances of his reign.

The Mughal Empire, constituting one of the world’s largest, accounted for 20% of the global GDP at that time, necessitating strict fiscal discipline. Their tax system wasn’t uniform but rather progressive. The amount paid was contingent on the extent of one’s land – productive land incurred higher taxes, while less productive land incurred lower taxes.

These examples collectively convey a consistent narrative: budgets have a long historical lineage, predating the existence of currency. However, two distinctions emerge – the historical budgets lacked the sophistication seen today, and they weren’t consolidated into a single document presented on a single day.

This transformation occurred gradually over many centuries, marked by the evolution from a combination of policies to the unified budgetary practices observed today.

In 1689, Britain experienced a transformative event known as the Glorious Revolution, leading to the erosion of monarchy supremacy. The parliament assumed a predominant role, restricting the king or Prime Minister from unilateral spending. Approval from the parliament became essential, though this early framework was rudimentary.

The parliament’s oversight initially focused on military matters, determining soldiers’ pay and allocating funds for the Navy. The underlying rationale was straightforward – preventing the king from assembling an army against the parliament. Consequently, control over the military budget was established, with other aspects gradually falling under parliamentary purview.

During the 18^th century, ministers of the crown transported their expenditure plans to parliament in a substantial leather bag.

Interestingly, the term “budget” originated from this bag itself, not the papers it contained. Derived from the Latin word “bulga,” the French term “bougette” meaning a bag or pouch evolved. Eventually, the term “budget” emerged from “bougette.”

The trend of presenting expenditure plans in parliament was initiated by Robert Walpole, the inaugural Prime Minister of Britain. He coined the term “opening of the budget” for these discussions, dating back to 1733.

By 1800, the concept of a budget had become widely embraced, yet it remained a dispersed process. The British budget resembled a patchwork – a little bit here, a little bit there. Basically, a bunch of different expenditures and policies, that would only change in the coming decades.

Meanwhile, the French, particularly under Napoleon, recognized the importance of financial control in managing the military, leading to their adoption of budgetary practices.

In 1803, the French embraced the English term “budget,” incorporating it into their financial practices. Subsequently, they refined and expanded its usage.

By the 1860s, the budget had evolved into France’s most important policy document. Officials diligently documented every aspect, encompassing expenses, revenue, and accounts of each department, consolidating everything into a comprehensive single document.

Across the channel, the British were impressed, leading to the establishment of the Public Accounts Committee in 1861 and the Auditor General’s Office in 1866. This signified a continuous refinement of budgets.

As colonial powers, England and France extended their domestic practices abroad, ensuring that colonies, too, implemented budgetary frameworks.

In 1790, Alexander Hamilton, the inaugural Treasury Secretary, presented an informal budget to the US House titled “A Report on Public Credit.” The advent of a formal budget would, however, be a prolonged process, taking more than a century to materialize.

Post-1911, several U.S. States and Cities embraced budget laws, paving the way for the inevitable – the establishment of a formal national budget.

The decisive moment occurred in 1921 with the passage of the Budget and Accounting Act, entrusting the U.S. president with the responsibility of planning and preparing the budget. Allocation decisions, determining which department receives more funding or faces cuts, now rested in the hands of the President.

The evolution of contemporary budgets was seen predominantly in the last century, prompted by key factors. The Great Depression in the 1930s served as a wake-up call, highlighting the inadequacy of a free market alone. Governments recognized the need for intervention, prioritizing specific sectors – a task facilitated by budgets.

Additionally, budgets transformed into populist tools, serving as a platform for announcing significant policies or spearheading economic reforms. Over time, they emerged as a crucial gate for assessing government policies.

India’s budgetary landscape has undergone numerous transformations. Following independence, the inaugural budget was presented in November 1947 by R. K. Shanmukham Chetty, who later resigned in 1948. Subsequent budgets were then presented by economist John Matthai from Kerala.

Since then, a plethora of budgets has shaped India’s economic trajectory. Notable instances include the transformative 1991 reform budget, which opened up the Indian economy, the 1997 dream budget that revamped India’s tax regime, and the 2000 Millennium budget propelling India into the 21^st century.

Each government, including the present one, has contributed to leaving an indelible mark on this ongoing process.

In 2017, the Railway and Union Budgets were merged; prior to that, they existed independently. Fast-forward to 2021, and the traditional budget documents made way for tablets, a precautionary measure to minimize contact during the COVID era.

The evolution of the budget has been a centuries-long journey, culminating in the contemporary single-day long speech format. Interestingly, there’s a simultaneous return to earlier practices, where significant work happens outside the budget.

While the budget still provides vital fiscal indicators such as growth projections, deficit targets, and fund allocations, a considerable amount of work now occurs beyond its confines – akin to practices from centuries past. This ongoing process adapts to the ever-changing needs, times, and contexts.

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