The Union budget presented today should raise serious doubts over whether the recession-struck Indian economy would be able to achieve sharp economic recovery, as projected by the Economic Survey.
The finance minister, in her speech, mentioned that the “total financial impact of all Atma Nirbhar Bharat packages including measures taken by RBI was estimated to about Rs. 27.1 trillion which amounts to more than 13% of GDP.” However, since the RBI measures amount to liquidity infusion, they do not directly contribute to fiscal expenditure and/or expansion of economic activity and output.
The revenue and expenditure data provided in the budget documents shows that while gross tax revenues in the current financial year, 2020-21, are going to be around Rs 19 trillion only, against the projected revenues of Rs. 24 trillion and the actual gross tax revenue of Rs. 20.1 trillion collected in 2019-20. Despise increasing excise duty collection by Rs 1.2 trillion from last year through higher duties on petrol and diesel, gross tax revenues are being driven down by lower corporate tax collections and GST revenues, down by over Rs. 1 trillion and Rs. 83000 crore respectively from last year, alongside lower income tax collections.
Total government expenditure in 2020-21, projected at Rs 30.4 trillion last year, is now expected to cross Rs 34.5 trillion. This reflects the additional expenditure incurred by the government through the Atmanirbhar Bharat package. The expenditure profile (Statement 2A) elaborates that over Rs 3 trillion out of the additional Rs 4 trillion being spent is on account of food subsidy, Rs 62638 crore on fertiliser subsidy, Rs 50000 crore on rural employment, Rs 38398 crore on Railways, Rs 4122 crore on medical and public health expenses etc. Besides there is a cutback of over Rs 1 trillion on establishment expenditure, interest payments and lower capital outlays on police, HEFA, urban development, atomic energy etc.
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As a result of enhanced expenditures and lower revenue mobilisation, the fiscal deficit is expected to increase from Rs 9.33 trillion, i.e. 4.6% of GDP in 2019-20 to Rs 18.48 trillion or 9.5% of GDP in 2020-21. The fiscal stimulus, estimated as the expansion of the fiscal deficit from last year, is therefore to the tune of Rs 9.15 trillion or 4.9% of GDP in 2020-21. In nominal terms, this is around one-third of what is being claimed by the government, which is adding the fiscal measures with liquidity infusion in a misleading manner.
People watch finance minister Nirmala Sitharaman presenting Union Budget 2021-21 on television sets, at an electronics store in Allahabad, Monday, Feb. 01, 2021. Photo: PTI
The government expects economic growth, which has plunged to -7.7% on 2020-21 by official estimates; the lowest in five decades; to recover in 2021-22 to 10-12% in real terms and 14.4% in nominal terms. Further, the government expects this economic recovery despite a sharp rollback of the fiscal stimulus in 2021-22.
Gross tax revenues have been projected to increase by Rs 3 trillion in 2021-22, with corporate taxes, income taxes and GST collections expected to increase by Rs 1 trillion each. There is a minor projected increase in customs duty collection and a minor decline in excise duty revenues. Since there have not been any major changes in the direct and indirect tax rates, it is obvious that the government is banking on the economic recovery to shore up direct and indirect tax revenues.
However, total government expenditure is projected to increase by Rs 32931 crore only, from Rs 34.5 trillion in 2020-21 to Rs 34.8 trillion in 2021-22. While the finance minister has showcased the Rs 1 trillion plus increase in capital expenditure in 2021-22 in her budget speech, she has concealed a substantive Rs 82,000 crore cut in revenue expenditures. The expenditure profile (Statement 2B) shows a Rs 3.75 trillion cut in “Other Expenditures” in 2021-22, which must be on account of the rationalisation of the centrally sponsored schemes as suggested by the Fifteenth Finance Commission.
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In real terms, this will ultimately lead to an over 2% of GDP cut in total government expenditure in 2021-22. The most significant cuts will be on food and fertiliser subsidies and allocations on MGNREGA and NSAP. With such cutbacks on government expenditure, especially on entitlements for the poorer section of the population, not only will the fate of the economic recovery remain highly uncertain but will also enhance inequalities of income and consumption.
It is obvious that the government is relying on a private sector led economic recovery in 2021-22. It expects the announcements of wholesale privatisation of the PSUs, including public sector banks and insurance companies, enhancement of FDI cap in the insurance sector etc. — coming after the earlier changes in the labour and farm laws — to unleash the animal spirits of the foreign and domestic corporate sector. Sadly, such expectations have never materialised in the past, neither in India nor abroad. Rather, such announcements only feed equity market bubbles, such as the one we are witnessing in India now. Speculative bubbles do more harm than good for the real economy.
Prasenjit Bose is an economist and political activist.
