The promise of a 'Budget never before'

(The writer can be reached at udayanhazarika@hotmail.com)

As the budget presentation time is approaching, the Government is now busy in shaping the pandemic-affected budget which evidently is pausing as an uphill task for it. The performance of the economy was already in at its low prior to the occurrence of the pandemic and the pandemic has crippled it to such an extent that till the end quarter of this fiscal, it has not been able to rebound. Under this backdrop there appears to be not much of enthusiasm among the quarters concerned – like the earlier years – on the preparation of the Budget 2021-22.The Finance Ministry has already announced that this year it will be a paperless budget which will be placed before the House on February 1 2021 i.e. only in a week's away from now. Government appears to be in a fix due to the volatile behaviours of the economic variables and the awkward financial position generated by poor resource collection. The GST collection during the latest quarter although is showing a satisfactory trend over the same period of last year, yet compared to the total resource requirements in various critical Departments such as health, defense, and labour sector, the overall collection inevitably will fall short. Among other sources of funds- the borrowing, as usual has played its role and has already crossed not only the limits set by the FRBM Act but also the upwardly revised figures of government – a level, crossing of which will prove counterproductive to the economy.

Before preparation of the budget, the Government must recall some pending dues which are required to be cleared as quickly as possible as and not later than the first quarter of the next fiscal itself. The first of such pending dues is the 1) dearness allowances to its employees- i) which was held up due to resource constraints earlier this year and ii) the next dose due to its employees. 2) Pending GST compensation which will not be cleared in the current year, iii) recommendation of the 15th Finance Commission in terms of nutrition and other dues for FY 21 which will remain pending for resource crunch and the dues arising out of the recommendation of the Commission for FY22.

There are also policy decisions to be taken on the demands made by the corporate sector to minimize the number of GST rates to two from the current five. A rationalization of GST rates is indeed the need of the hour. It will induce more tax payers to participate in the payment process resulting in an increase in volume of collection and also seal the leakages. Despite the demands for reduction in direct taxes from various quarters, this will probably not be happening. Among others in the wish list are the need to allocate more funds to the health and wellness sector with focus on health insurance, enhancing defence funds, raising scope for employment, etc.

In the face of all these, the Finance Minister has promised the nation — a budget never before. In reality, going by the past records of this Government, no one would ever expect any miracle to happen in the Finance Ministry with its present setup which can produce such a budget. Handling a collapsed economy and steering it to a success is the business of an experienced technocrat which the Department lacks. The most unfortunate is the fact that when the economy was in shape, no effort was made to maintain it, rather did everything to shatter it.

As budget preparation exercises are already on, let us have a look at our present fiscal position in terms of the targets fixed by the budget 2020-21(FY 21)- because the next budget will be directly impacted by the performance of the current budget. The budget for FY 2021 was placed at a time when there was no threat of the Covid-19. It was in fact immediately after the budget the threat appeared. The Covid-19 came with a death warrant to the economy which is already in the sick bed. Let us first examine the receipt position and follow the status of expenditure and finally see the outcome.

Till November, the receipt position was only to the tune of Rs 8.31 lakh crore as against the budgetary estimate of Rs 22.46 lakh crore, excluding the debt revenue. Thus, the status of revenue collection till the third quarter of this fiscal is undoubtedly very poor comprising only 37 per cent of the expected total revenue. With this performance, it cannot be expected that the budgetary target of revenue collection could be achieved by the year-end. The total non-debt capital receipt was estimated at Rs 2.25 lakh crore against which the collection till November was only to the tune of Rs 18,141 crore comprising only 8 per cent of the total. The major failure in this count was the realisation from disinvestment which has been only Rs 6,179 crore as against the budgetary estimate of Rs 2,10,000 crore comprising as low as 2.9 per cent. The Government has recently decided to hike the import duty by about 5 per cent to 10 per cent on certain commodities (50 in numbers) such as smart phones, electronic items, etc. Although the move has been stated as a follow-up measure of PM's self-reliant India, yet the inherent objective is to mop up something around Rs 25,000 crore as additional revenue. But for this meagre amount of revenue, the government has taken the risk of delinking the regular external market from the domestic market.

While the total debt receipts was estimated at Rs 7.96 lakh crore in the budget, in actuality the debt position has slipped out of hand as it exceeded the estimated limit by a magnitude of Rs 1.57 lakh crore as in October 2020. The estimated gross and net market borrowing as per budget was Rs 7.80 lakh crore and Rs 5.45 lakh crore respectively for FY 21. However, the gross target was revised upward twice – once in May and other on 15th October to Rs 13.10 lakh crore. The second enhancement was necessitated due to the compensation payable to the States towards GST shortfall. The Government needs to keep in mind that i) it has been spending capital receipts for revenue expenditure and ii) the resultant inflationary pressure in the economy.

As against this receipt position, the expenditure was huge. Total expenditure incurred was to the tune of Rs19.06 lakh crore comprising 63 per cent of the total budgetary estimates of Rs 30.42 lakh crore. Out of this expenditure, Rs 16.65 lakh crore has been spent on revenue account and Rs 2.41 lakh crore as capital outlay. Of the above revenue expenditure, Rs 3.34 lakh crore has been transferred to the States as devolution of share of central taxes. Calculations from various sources show that there is possibility that the expenditure will exceed the estimates by about 20 per cent. If this is so, the total expenditure will go up to Rs 36.40 lakh crore. But the fact is that an amount of Rs 5.21 lakh crore as devolution of share of central taxes and Rs 24,781crore as deficit grants are yet to be transferred to the States. Apart from this, huge expenditure due mainly to the vaccine bills is still remained unestimated. Capital expenditure till November 2020 still remained at only 58 per cent of the budget estimates and due to fund crunch the government will perhaps not go for infrastructure projects which were launched early this year under National Infrastructure Pipline (NIP) in the later part of last year with a cost of Rs 103 lakh crore. Therefore, the assessment that the expenditure will go up by 20 per cent is only towards the lower side while a realistic assessment would be around 30 per cent. It may also be noted that even a 20 per cent increase in expenditure will create a budget deficit of more than Rs 6 lakh crore.

The huge shortfall in the revenue receipt and the similar volume of fund necessitated to deal with the Covid-19 impact in various sectors of the economy had to be bridged through borrowing. Initially, government expected fiscal deficit to be around 3.5 per cent of GDP in tune with the FRBM Act. But with the increase in volume of borrowing, the fiscal deficit in November itself has crossed 7.0 per cent of the GDP. A last quarter calculated and poignant effort could lead to a record result in the collection of revenue which could contribute to the reduction in the fiscal deficit.