India’s general Budget 2017-18 will be interesting for a variety of reasons. It would be a first for two major reasons ~ inclusion of Railway Estimates in the General Estimates and abolition of the Plan and non-Plan distinction. How would each of these alter the complexion of the Budget? Are these the only challenges?
Indian Railways (IR) currently runs operating ratios that are  over 90 per cent. This leaves precious little for new capital projects and extension, even less for maintenance, additions to rolling and motive stock and accretion to reserves while deferred dividends would continue to multiply. With a general turndown in manufacturing activity, freight revenues would sag substantially. For instance, the declining demand from high-tension energy consumers has caused several major coal-fired thermal power plants to back down. In turn, this is reflected in Coal India's stagnant, even declining, production figures. The same holds true for almost all other ores and equivalents that account for perhaps half of the freight earnings. Although global commodity prices have taken a severe knocking and even anti-dumping duties are not too serious a deterrent, yet with an overall decline in manufacturing activity, reduction in bulk imports will invariably have a negative fallout on IR's freight revenue. At the same time, the commercial exploitation of Railway land and immovable assets has major limitations. For one, audit, vigilance and investigation can justifiably scare away proposing officers. Second, much of such assets, notably land, are located in areas where land prices are already low owing to lack of demand. Encroachment over the decades has substantially reduced the price and availability even more. On the passenger front, a rapidly expanding budget and feeder airlines are steadily gnawing at air-conditioned class travel. Volvo and long-distance sleeper buses offering dynamic fares on point-to-point connectivity between passenger railheads would probably add to the further diminution of Railway revenues. Safety and comfort remain standing bugbears for passengers. Inter-city bus services, run by states and private operators, have also been steadily adding to their fleets and augmenting the number of daily services, something IR is unlikely to be able to match. Clearly, all these will cast a tremendous negative impact on the General Budget. 
The second issue is a welcome step, having been proposed by the Dr C Rangarajan Committee about five years ago. However, there are several grey areas, notably in recognising capital and revenue items that are governed mainly by the woolly distinction between the two items laid out in Rule 79 of the General Financial Rules (GFRs), 2005. At present, there are several thousand project and contract posts that are funded from capital funds and get carried over from project to project, oblivious of their often eternal timeliness, assuring lifetime career opportunities. There are many revenue expenditure-based projects, such as in the R&D category, that include high-value project stores and several thousand personnel that ought to be classified as capital expenditure but are not, even though such R&D projects/establishments work to create permanent assets for India. If the revenue-capital divide is indeed genuinely enforced, shouldn't the government’s permanent assets be valued and revalued every five years as well? These are national assets, after all. GFR 79 is  so loosely worded that it is subject to  convenient interpretation/re-interpretation. How would the new classification change the way business is done in the government? Would it result in more capital expenditure? Past practice is not very encouraging for a guide.
However, there are other major challenges, far greater than these two issues. Several economic and policy factors may severely constrain public expenditure proposals in the forthcoming budget. The deepening manufacturing crisis (including the real estate and infrastructure sectors) would exert an adverse pressure on excise and other related revenues. With a large decline in business earnings by falling sales (such as the automotive sector by a fourth), the contribution of corporate taxation in real terms would decline. The gradually reviving global oil prices over the 2014 levels are already exerting pressure on oil PSU margins and will reduce dividends available for transfer to the Government of India. With manufacturing in the doldrums, non-oil PSUs too are hard-pressed to meet the rising demand for unsustainable dividend from the government and buy-back of government shares that would have added to non-tax revenues. Coal companies, for instance, have been hit by the backing down of many coal-fired power stations owing to low industrial consumer demand and the shift to alternative energy sources. The delay in implementing GST would only add, in substantial measure, to the dearth  of the  government’s fiscal resources.
Public sector banks (PSBs), that have been assured Rs 70,000 crore over 2016-20 by the Government of India, need much more for achieving Basel-IV norms of liquidity that is unlikely to be available. At the same time, recovery suits are bogged down in mostly understaffed Debt Recovery Tribunals while the volume of NPAs is steadily rising. If corporate debt restructuring (CDR) cases were added, the real volume of NPAs could potentially skyrocket. To these can be added the giant public deposits arising from remonetisation on which banks would have to fork out 4-5 per cent interest per annum.  The lowering of lending rates for commercial borrowers seems to have limited takers owing to low consumer demand. In effect, the banks would be saddled with idle funds on which 4-5 per cent interest at least would be payable. Any further rise in US Federal bank rates carry a potential backward migration of foreign investments in India, particularly those that have no long-term moorings.
A major set of reasons for the scarcity of government funds is the overweening emphasis on revenue generation by sale/lease of state/natural resources such as telecom spectrum and FM stations. The entire process of public auction to the highest bidder is ruinous, indeed antithetical, to the interest of the nation. Such assets are public properties to be devoted to the common good. A deliberate decision of the government to arrive at a minimum reserve price for spectrum, for instance, after factoring certain conditions, such as embargo on mobile call/data tariff plans beyond 5 per cent per annum, specified density/sq km of mobile towers, downtime/slow speed penalties, free Internet connectivity for educational and health institutions, 50 per cent tariff (of urban tariffs) for rural and semi-rural areas, etc., would have pegged the price of spectrum to more realistic levels as would a reverse price auction from such a benchmark. This would also have partly offset malfeasance in very large revenue-sharing deals and made monitoring of contracts relatively easier. This was a major reason why the recent spectrum auction was able to collect barely 10 per cent of the targeted licence fee and which left a gaping hole in the Centre's projected finances by nearly Rs 6 lakh crore. This plagued the auction of FM stations too.
Furthermore, there are pending wage revisions, both in the public sector as also in states as a cascading effect of the partial acceptance of the 7th Central Pay Commission's recommendations by the Government of India. Another major sector is the defence services that need urgent upgrades in war material, technologies and provisions. Central and state police forces too need proportionate upgrades. Even the Make-in-India programme for the defence services would demand guaranteed defence purchase budget allocations and waiver of competitive bidding for a private entrepreneur to invest several thousand crore rupees in captive manufacturing facilities for at least 20-25 years (like the Maruti-Suzuki ancillary units in Gurugram in the 1980s and 1990s). The same would hold true of all sectors where government purchases alone would sustain private manufacture. Budgetary uncertainties would equally affect defence PSUs like GRSE, BEL, BDL, etc., that mostly live off government-funded orders from the defence services, more so if they have to compete with private manufacturers of military terrestrial transport and the like. In fact, the only way Make-in-India may succeed is by a giant scale of operation, akin to the Chinese model, from where it was evidently borrowed and given the Indian moniker. The challenges are gargantuan and solutions not facile. Second-hand bargain hunting, vintage solutions and accounting ingenuity are no longer options in circumstances that are not far less in magnitude from the 1990-91 crises.

(The writer is a senior public policy analyst and commentator)