Finance Minister Nirmala Sitharaman began a new practice in the Union Budget , presented on July 5, when she relegated the numbers, or the budgeting, to the fine print, in a break with tradition; they are usually presented as a part of the speech on the floor of the House in Parliament.
What are the compulsions that could have made her shy away from stating the numbers as her predecessors have done earlier, no matter how uncomfortable the fiscal position?
Falling tax revenues
The Central government’s tax revenues for the financial year ending March-end 2019 — as reported by the Controller General of Accounts (CGA) — fell short of the Interim Budget’s estimates (that the Modi government presented in its first tenure) in February by a whopping 0.9% of GDP.
The CGA’s figures show that direct tax collections for 2018-19 fell short by ₹74,774 crore while those of indirect tax collections were by ₹93,198 crore.
The Budget Speech saved the Modi government the embarrassment of owning up to this shortfall on the floor of the House, although this is not the first time that a government has overestimated tax collections.
Ms. Sitharaman has now budgeted for lower tax revenue in the ongoing financial year, 2019-20, than her predecessor, Piyush Goyal had in the Interim Budget.
The new Budget estimate for gross tax revenue is ₹90,936 crore lower than what was projected in the Interim Budget. This is despite the higher surcharge Ms. Sitharaman has imposed on income-tax for those earning more than ₹ 2 crore and a range of hikes she has levied on customs duties.
The new Budget estimates show that the government does not expect to improve its performance on tax collections in the current year: Gross tax revenue-GDP ratio is budgeted to slip from 11.9% in 2018-19 to 11.7% in 2019-20. While the direct tax-to-GDP ratio is expected to go from 6.4 to 6.3, the indirect tax-to-GDP ratio will reduce from 5.5 to 5.3.
To fill the gaping hole on the tax revenue side, significantly higher non-tax revenues have been budgeted than the estimates of the Interim Budget. Dividends and profits from public sector enterprises are budgeted at ₹1,63,528 crore compared to ₹1,36,072 crore in February. This includes an extraordinarily large increase in dividends from the Reserve Bank of India from the ₹68,000 crore it paid last year to ₹90,000 crore.
The Budget now estimates ₹1,05,000 crore to be raised through disinvestment, higher than the ₹90,000 crore that Mr. Goyal had projected in the Interim Budget and the ₹80,000 crore raised in 2018-19.
Tapping public enterprises
On the revenue side, therefore, the government proposes to make up for its below-expectations performance by extracting more from profitable public sector enterprises (PSEs); the economy would have been better off had these enterprises taken the lead in rolling out fresh investments, thereby generating growth impulses for the rest of the economy.
As a percentage of GDP, non-tax revenue is budgeted to grow from 1.3% in 2018-19 to 1.5% in 2019-20.
The expenditure estimates show that the money the government is raising from assets, through disinvestment and extracting from the PSEs through dividends, is not going towards significantly expanding public investments. This is because much of it is getting spent on providing for salaries, pensions, subsidies and interest payments on past borrowings.
This is why the Budget presented by Ms. Sitharaman is a hand-to-mouth Budget. She did well in resisting demands for a fiscal stimulus to pump prime the economy. That is also what has made it a fiscally prudent budget.
The revenue expenditure is budgeted to grow to ₹24,47,780 crore in 2019-20, an increase of 14.3% over the revised estimate for the previous year.
The fiscal gap between expenditures and revenues will be financed by borrowing ₹7.10 lakh crore. In 2019-20, the outgo towards interest payments is budgeted at ₹6,60,471 crore, or more than a third of the total revenue receipts.
The government’s interest payments for past borrowings, the largest component of the revenue expenditure, are budgeted to grow in nominal terms, from 11.1% in 2018-19 to 12.4% in 2019-20, or faster than even the estimated GDP growth.
Capital expenditure of the government is budgeted at ₹3,38,569 crore for 2019-20 which reflects a growth of 6.9% over the revised estimate of 2018-19. In other words, capital expenditure is projected to grow at a rate slower than the projected rate of GDP growth.
This comes when the Budget speech made much about the need to revive investments to accelerate GDP growth. Ms. Sitharaman emphasised in her speech that investments of ₹100 lakh crore would be needed cumulatively over the next five years to boost infrastructure; this works out to be around ₹20 lakh crore a year.
She did not say where this money would come from. Current savings and investment rates in the economy cannot provide for such large sums. Perhaps the hope is that foreign investors will deploy in India cheap funds they will be able to raise in advanced economies where the costs of borrowings are expected to reduce as the global economy enters a phase of weak economic growth and trade.
Be that as it may, what is not clear is how the government expects the Budget to be called ‘pro-investments’.
It is inescapable from the Budget arithmetic, though, that revenue expenditures and the tax revenues are in need of serious corrections. If they were in better shape, significant expansions in public investments would have been possible.
Puja Mehra is a Delhi-based journalist. She is the author of the book, ‘The Lost Decade (2008-18): How India’s Growth Story Devolved Into Growth Without a Story’
