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Inaccurate budget projections

It is now clear that the Union Budget for 2003-04 has hugely under-provided for expenditure, making it highly likely that the Government's numbers will turn out to be vastly off target. Whether it is in compensating the States for the cut in Central Sales Tax or meeting the costs of the new group health insurance scheme or covering government costs in the promised Rs 60,000-crore infrastructure programme, the budget provides for little or no expenditure. This makes it a near certainty that by this time next year expenditure would have careened out of control, while the revenue and fiscal deficits have widened beyond measure.

This would not be something new. It has been a part of recent tradition to over-estimate revenue and under-estimate government expenditure, though what seems to be new in the budget for 2003-04 is that revenue projections appear realistic while the expenditure projections seem unrealistic. The accompanying Table that compares the actual figures with the budget estimates gives an idea of the scale of shortfall/excess in recent years. The figures are self-explanatory, with 2001-02 being a particularly bad year in which the actual levels of revenue and expenditure had little connection with the budget estimates. There are some broad features in what seems to be a casual manner of budget preparation.

First, it is usually the case that the revised estimates for a year, presented in February towards the end of the fiscal year, differ from the budget estimates, presented in the same month the previous year. If that is not bad enough, when the final figures are available there is often a substantial difference from the revised estimates as well! Invariably this takes the form of revenue figures being progressively revised downwards and the expenditure figures upwards. The only exception in the recent past was in 1999-2000, when final revenue receipts were higher than the revised estimates although they remained lower than the budget estimates — though not by a large amount.

Second, the end result of this poor budgeting is that the revenue deficit can turn out to be 40 per cent larger than budgeted (1998-99) and the fiscal deficit 30 per cent wider (1999-2000).

Third, Plan expenditure too suffers from an under-provisioning, though in one year (2001-02) the final outlay was a reasonable 6 per cent larger than the budgeted amount.

In some cases the extent of revenue shortfall is so large that there is even a year-to-year decline in receipts. This was so in 2001-02. The budget for 2001-02 estimates that gross tax revenue (GTR) would increase by 14 per cent (budget estimates for 2001-02 compared to revenue estimates for 2000-01). In the event what happened was that the final figures of GTR for 2000-01 were even lower than expected. The revised estimates of GTR for 2001-02 were first placed at 13 per cent less than the budgeted amount, and when the final figures came in the shortfall was as much as 17 per cent. Gross tax revenue in 2001-02 (actual) was Rs. 187,060 crores, marginally lower than the 2000-01 (actual) of Rs. 188,604 crores!

The revised estimates for 2002-03 for now show a smaller set of differences than in the past for revenue, expenditure and the two deficits. But one should not read too much in these figures. As always the true picture will be known when the actuals are available later this year.

The actual levels of receipts and expenditure can never be accurately budgeted for. There are many imponderables that a government faces during the year. But the systematic manner in which revenue is over-estimated and expenditure under-estimated, indicates that the budget makers are more keen on presenting government finances in a favourable light than in preparing a realistic budget.

CRR

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