1. Union Budget 2017: It’s as though demonetisation hasn’t happened; normally, this would be a fine budget

Union Budget 2017: It’s as though demonetisation hasn’t happened; normally, this would be a fine budget

The real issue is not the fiscal slippage target but whether the government’s expenditure patterns are really addressing the need and the funds are utilised with right strategy.

By: | New Delhi | Published: February 2, 2017 7:58 AM
At the moment, analysis of only partial costs of schemes is done, as a lot of the expenditure is classified under the non-plan category. (Reuters)

Fiscal Deficit target budgetted at 3.2% of GDP for FY 18 despite calls for fiscal expansion to spur economy: The real issue is not the fiscal slippage target but whether the government’s expenditure patterns are really addressing the need and the funds are utilised with right strategy. Under normal circumstances, this would be a fine Budget.

But my essential worry is it tends to give the impression that demonetisation has not really taken place. As for fiscal expansion, there is no point announcing spending when the adequate systems are not in place to spend the extra money. I am afraid the capacity of government to spend quickly (to pump up the economy) is not that great.

The Plan and non-Plan spending classification has been removed and rise in capital spending budgetted at 25.4%: An impression is being made that capital expenditure has been raised substantially, but the real issue is how this growth projection has been calculated. Revenue and capital expenditure data are sensitive to classification and the Budget speech didn’t mention how they have been classified. In the earlier classification, only the plan size (of a scheme) was quoted.
Doing away with the plan and non-plan classification is a good idea. But what does serve the real purpose is that a proper classification of expenditure is done so that the full costing of individual scheme or project can be done.

At the moment, analysis of only partial costs of schemes is done, as a lot of the expenditure is classified under the non-plan category.

Gross tax revenue growth pegged at 12.3%, against 17% for FY17: Ultimately, the rise in tax revenue depends upon the growth of the economy. The assumption of a 12.3% rise in tax revenue is a reasonable one.
But with that much of growth in tax revenue, how the 3.2% fiscal deficit target (the same as the revised estimate for FY17) will be achieved remains to be seen.

Sharp rise in advance filing of personal income tax following the note ban: Demonetisation may have played a role in the sharp 34.8% rise in advance filing of personal income tax until December. (It’s assumed that some people might have declared black money hoarded with them as income).
But what is also likely is that since people were given the choice to use the old high-denominated currency notes to pay taxes, some might have paid excess advance tax. If that is the case, then the tax collection in the fourth quarter could drop.

As told to Banikinkar Pattanayak

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