A closer look at the Budget

There are some areas of concern, though the government has done well to put an end to subsidy fudging and come clean on numbers

When committed to submitting an article on the Union Budget by 5.30 pm on Budget day, I have to hurry through the documents that are released only after 1.30 in the afternoon, and end up writing on the headline items, without having the time for any detailed analysis of how the numbers stack up. A more thorough examination comes later.

There is definitely one headline item that is praiseworthy. Most of us were expecting the fiscal deficit in the revised estimate of 2020-21 — or 2020-21(RE) — to be tailored at 7.7 per cent to 8 per cent of GDP. That it was pegged at 9.5 per cent suggests a welcome change from some the traditional Budget fudges, such as hiding food subsidy under borrowings of the Food Corporation of India, or not paying manufacturers large amounts of the fertiliser subsidy.

Together, the additional subsidy on food and fertiliser accounts for a sum of Rs 369,686 crore in 2021(RE) — which has increased the fiscal deficit by a massive 1.9 per cent of GDP. Putting an end to subsidy fudging has been long called for, and we should be grateful that the circumstances of Covid-19 have given space to the government to clean these numbers.

Indeed, the fiscal deficit for 2020-21(RE) being upped by 6 percentage points to 9.5 per cent of GDP versus the Budget estimates has probably conferred greater credibility to fiscal deficit estimate of 6.8 per cent of GDP for 2021-22(BE).

Now, to the numbers, starting with tax revenue. Given Covid-19, it is hardly surprising that gross tax revenue for 2020-21(RE) is 21.6 per cent lower than the BE. By disproportionately reducing the share of the states — by almost 30 per cent compared to the BE — the Centre’s shortfall in net tax revenue has been kept to under 18 per cent. According to the Controller General of Accounts, thanks to the economic uptick in October-December 2020, the government has already collected 70 per cent of its gross tax revenues in the first three quarters of 2020-21. I expect that the residual 30 per cent, or Rs 562,154 crore, will be garnered in January-March 2021 and that actual gross tax revenue for 2020-21 may even be a bit higher than Rs 1,900,280 crore projected in the revised estimate. We seem to be okay on that score.

The PM Atmanirbhar Swasth Bharat Yojana, to be launched with an outlay of about Rs 64,180 crore over six years

My worry is with the 16.7 per cent growth in gross tax revenue for 2021-22(BE). With the Budget projecting nominal GDP growth of 14.4 per cent in 2021-22, this assumes a tax revenue buoyancy of 1.16 — where a 10 per cent growth in nominal GDP will raise gross tax revenues by 11.6 per cent. We haven’t seen this kind of elasticity for a while. More often than not, the rate of growth of tax revenue has been less than that of nominal GDP — a fact that troubled the Fifteenth Finance Commission to no end. I am disquieted by the gross tax revenue projections for 2021-22, and fear that the government may fall short of its ambitious Rs 2,217,059 crore target by 5 per cent, or around Rs 111,000 crore. Let’s pray not, because much rides on the government’s success in meeting the tax revenue target.

My second concern is the disinvestment target of Rs 175,000 crore. To be sure, the Finance Minister has promised strategic divestments in Bharat Petroleum Corporation Limited, Air India, the Shipping Corporation of India, the Container Corporation of India and others, plus privatisation of two public sector banks and one general insurance company during 2021-22. Truth be told, however, the track record of the Department of Investment and Public Asset Management (DIPAM) leaves much to be desired.

Consider what Arvind Panagariya, a big fan of the government, wrote in his latest book, India Unlimited: Reclaiming the Lost Glory. In 2016, the Prime Minister explicitly directed NITI Aayog to identify public sector enterprises for privatisation. As the vice chairman of NITI Aayog, Panagariya sent a detailed list to the Prime Minister who, in turn, ensured Cabinet approval. This list then moved on to DIPAM — where it remained resolutely stuck, without a single privatisation. If this target of Rs 175,000 crore is to be met, the Finance Minister, under whom DIPAM falls, should wield the whip. Not once. But often.

My third concern is the habit of announcing myriad multi-year high outlay schemes in Budget speeches without appropriate expenditure allocations. Here are some in this Budget:

• The PM Atmanirbhar Swasth Bharat Yojana, to be launched with an outlay of about Rs 64,180 crore over six years. That implies Rs 10,697 crore per year on average. There seems to be no reflection of this in the expenditure numbers.

• Ditto the Jal Jeevan Mission (Urban) that will be launched with an outlay of Rs 287,000 crore over five years.

• Ditto the Urban Swachh Bharat Mission 2.0 with an allocation of Rs 141,678 crore over five years from 2021 to 2026.

• Ditto Rs 305,984 crore over five years to revamp the power distribution companies.

When such schemes are announced, these should be clearly linked to relevant annual outlays on the expenditure side. That confers much-needed credibility.

 Fourth, I am at a loss to understand how the central government’s pensions expenditure for 2021-22(BE) at Rs 189,328 crore is 7.4 per cent less than 2020-21(RE). Defence pensions is estimated to reduce by 7.3 per cent; and other central government pensions are coming down by almost 10 per cent. How so? It needs explaining.

This has been a tough Budget to frame; and the Finance Minister and her team deserve some slack. So let’s end with two positives. First, the healthy 26 per cent rise in capital expenditure in 2021-22(BE) versus 2020-21(RE) deserves credit. Our growth needs to be driven by higher capital formation. Hopefully, this is a beginning of a swing away from consumption handouts to greater investments.

The other positive is a clever, first-of-a-kind “goody bag”. I refer to the Finance Minister keeping over Rs 44,000 crore in the Budget head of the Department of Economic Affairs to be provided for projects, programmes and departments that show good progress on capital expenditure and require further funds. It is a good strategy to keep some standby money so as to avoid making fresh demand for grants in a time of need.

Let us hope that this Budget delivers. It needs 10 per cent plus real GDP growth in 2021-22, the rebound year. That ought to be possible. 

The author is Chairman, CERG Advisory Private Limited