Santosh Kumar Mohapatra
The budget speech Finance Minister Nirmala Sitharaman gave in parliament obscured the grim realities of a floundering economy and hoodwinked masses using statistical jugglery. Normally, the budgetary outlay is decided in tandem with expected rise of nominal GDP growth. Wrong assumption of growth rate makes budgetary outlay flawed and unviable.
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Budget 2020-21 envisages 10 per cent increase in nominal GDP growth and 6 to 6.5 per cent real GDP growth. This seems preposterous and unrealistic compared with earlier trends.
In the last three years, GDP growth has been declining, which corroborates the onset of slowdown and recessionary tendencies. In 2019-20, the budget envisaged 7 per cent real GDP growth and 12 per cent nominal GDP growth. But real GDP growth is expected to be around 5 per cent, whereas nominal GDP is expected to be 7.5 per cent only. Even in 2018-19, the growth rate of 6.8 per cent by earlier estimate has turned out to be 6.1 per cent only.
There lies the deception as the government has made snobbish claim of higher outlay for 2020-21 when revenue receipts are falling and growth is decelerating. The total expenditure is estimated to be `30.42 lakh crore as against the target of `27.86 lakh crore in 2019-20, indicating a rise of 9.18 per cent, which is closer to the projected nominal GDP growth. But compared with revised outlay of `26.98 lakh crore, the rise will be 12.7 per cent. Hence, budgetary outlay based on overambitious growth rate will prove erroneous.
Projections for 2020-21 reflect the same bias of inflating revenue projections. Gross revenue receipt is expected to rise 9.18 per cent. It is estimated to be `20.20 lakh crore against revised estimate of ` 18.50 lakh crore in 2019-20. But total receipts without borrowing is expected to rise 16.3 per cent, which is unrealistic.
Fiscal deficit is estimated to be 3.5 per cent in 2020-21. But achieving this target depends on a bulky increase in disinvestment receipts of ` 2.1 lakh crore, an increase of over 323 per cent over `65,000 crore achieved in the 2019-20. This includes `90,000 crore from financial institutions. Disinvestment is tantamount to selling the family silver to pay the grocer’s bill.
What is worrying is that the government’s revenue receipts will fall short of `1.12 lakh crore as actual total revenue receipt would be `18.50 lakh crore against the target of `19.62 lakh crore in 2019-20. But the net shortfall of central taxes will be about `1.85 lakh crore.
Fiscal deficit for 2019-20 is modified to 3.8 per cent as against the budgeted estimate of 3.5 per cent with slippage of 0.3 per cent. The target of 3 per cent was originally scheduled for 2007-08, but it could not be implemented owing to the inability of the government to raise resources by taxing the rich. Fiscal deficit is not bad if it is within repayment capacity and used to create assets. The tragedy is that higher fiscal deficit did not yield good result as about `1.45 lakh crore were given to the corporate sector through tax cut.
As government finances are under severe stress, the finance minister is balancing a shrinking fiscal space by increasing non-tax revenues such as dividends from RBI and public sector units. But it is worrying that the government has cut its expenditure by `87,757 crore as revised budgetary outlay for 2019-20 was `26.98 lakh crore as against budgeted estimate of `27.86 lakh crore. The revised estimate figures also show gigantic cuts under several heads.
Actually, if off-budgeted borrowing — especially by the Food Corporation of India for food subsidy — is included, the actual deficit will be much higher at about 4.5 per cent of GDP in 2019-20 and 4.36 per cent in 2020-21.
The expenditure profile of the budget reveals that extra-budgetary outlays have risen from `88,000 crore in 2017-18 to `1.73 lakh crore in 2019-20. It is expected to climb to `1.86 lakh crore in 2020-21.
The new income tax rate regime which gives the taxpayer the option to either avail exemptions while paying a higher rate of tax or forgoing exemptions while paying a lower rate of tax is perplexing. Although the taxpayer now gets to choose, it will complicate the role of the income tax department. It is tantamount to tax terrorism.
Increased reliance on cesses and surcharges has contravened the spirit of fiscal federalism, since the funds collected are not shared with states. States again suffer as the fifteenth Finance Commission (FC), in its report for fiscal year 2020-21 has recommended marginal reduction in vertical devolution of the divisible tax pool from 42 per cent to 41 per cent.
This owes to the newly formed Union Territories Jammu and Kashmir and Ladakh. It is disquieting that the share of states in the central tax pool is at a 50-year low. States will get `6.56 lakh crore in 2019-20 as against budgeted estimates of `8.1 lakh crore, impacting state finances heavily. The share of Odisha will be reduced to 4.06 per cent from 4.64 per cent in the 14th FC. It had declined from 5.16 per cent in the 12th FC to 4.77 per cent in the 13th FC.
The budget speech shows the government is clueless about tackling the crises plaguing the country’s economy including a slowdown, stagflation, job losses, unemployment, rising inequality, dwindling rural consumption and demand, rising rural poverty, agrarian distress, decline in consumer spending, and fall in savings and investment. The government should go for higher spending through monetisation of deficit, that is printing currency.
The writer is an Odisha-based economist. e-Mail: [email protected].
