BUDGET 2020,
Finance minister Nirmala Sitharaman presented the budget for 2020-21 against the backdrop of acute fiscal stress. Mint examines if this budget has fully acknowledged the gravity of the fiscal situation or laid out a road map for corrections.Are the tax revenue projections realistic?
The revenue and gross domestic product (GDP) growth projections in the last budget were unrealistic. The revised estimates show that the overestimation of the gross tax revenue in that budget was to the tune of 2.9 trillion or 1.46% of GDP. The gross tax revenue growth in 2019-20 was a modest 4%, and much less than nominal GDP growth, which the statistics ministry estimated at 7.5%. That still hasnt stopped the budget from relying on over-optimistic growth assumptions again this time. Gross tax revenue growth for 2020-21 is projected at 12%, faster than nominal GDP growth, which is projected at 10%.
Are the fiscal deficit numbers credible?
The FY21 budget comes clean on this count to an extent. The last budget tried to hide the strain by relying on overambitious tax revenue growth projections for its fiscal arithmetic. Also, it assumed 12% nominal GDP growth, while the statistics ministrys advance estimate came at 7.5%. This dealt a blow to the credibility of the fiscal maths and even contributed to the departure of a key bureaucrat from the government. This budget estimates fiscal deficit at 3.8% of GDP for FY20 against the target of 3.3% set earlier. The projection for FY21 is 3.5%, against the 3% target set by the Fiscal Responsibility and Budget Management (FRBM) Act.
Graphic by Paras Jain/Mint
What about the off-budget borrowing numbers?
The finance ministrys age-old trick of borrowing off-budget such as through the Food Corporation of India continues in this edition. The difference this time is that all such items of off-budget borrowing have been transparently disclosed. As a result, the total borrowing reported for FY20 comes to 4.6% of GDP, more than the fiscal deficit figure of 3.8% of GDP.
Has the fiscal strain been addressed?
The fiscal hole has grown so big that the budget sought recourse to the FRBM Acts escape clause” for missed fiscal deficit targets. To defuse the ticking fiscal time bomb, structural corrections are required on the expenditure and tax revenue sides. However, the budget offers no concrete measures to check tax evasion or widen the tax net. Instead, it relies on one-time receipts such as dividends and disinvestment proceeds as well as borrowings from the National Small Savings Fund.
Will the higher deficit stimulate growth?
The budget offers no big growth push by way of spending. The governments finances are so stretched that even invoking the escape clause” and letting the fiscal deficit widen havent opened up much fiscal space for a spending stimulus. The FY21 allocation for the rural job scheme is 9,500 crore less than the FY20 estimated spending. The allocation for PM KISAN has risen 20,630 crore. Capex is estimated to go up from 1.7% to 1.8% of GDP.
Puja Mehra is a Delhi-based journalist.