1. Union Budget 2016-17 countdown: Fiscal consolidation on track

Union Budget 2016-17 countdown: Fiscal consolidation on track

India has followed a path of gradual fiscal consolidation from FY12 after it became apparent that the fiscal stimulus to boost the manufacturing sector to avert the collateral damage of global financial recession was becoming highly inflationary.

By: | Updated: February 8, 2016 10:27 AM
Fiscal consolidation

India has followed a path of gradual fiscal consolidation from FY12 after it became apparent that the fiscal stimulus to boost the manufacturing sector to avert the collateral damage of global financial recession was becoming highly inflationary.

While the government’s indirect tax collections remain buoyant because of higher oil tax revenues, a sharp drop in nominal GDP growth has resulted in a shortfall in direct tax mop up in the current financial year. As a result, tax buoyancy has not gone up significantly.

The government has increased the excise duty on petroleum products thrice in this fiscal and imposed an additional cess on service taxes. Collections from excise duty have touched Rs 1,46,324 crore till FY16 November, which is a jump of 70% as compared with Rs 85,925 crore collected during the same period in the last fiscal. In the eight months of this fiscal, the government has already achieved 64% of the budgeted estimate in excise, much higher than the 48% achieved during the period in the last four years. Similarly, service tax grew 24% y-o-y and 55% of the budgeted target.

However, the Centre is likely to face a gap in direct tax collection this fiscal as the mop-up in first eight months has been slow, at 46% of the budgeted target of Rs 7.97 lakh crore. During April-November, direct taxes, which include income tax and corporate tax, grew 12.63% to Rs 3.69 lakh crore. Corporate taxes grew 8.2% y-o-y as revenue and profit of corporate India have been moderating because of the slowdown in both urban and rural consumption and falling global commodity prices. It is likely that the shortfall in direct taxes will be met by the robust growth in indirect taxes.

India has followed a path of gradual fiscal consolidation from FY12 after it became apparent that the fiscal stimulus to boost the manufacturing sector to avert the collateral damage of global financial recession was becoming highly inflationary. Although the current budget pushed the medium-term fiscal roadmap by a year—fiscal deficit at 3% of GDP by FY18—the quality of Centre’s fiscal spending has improved, with more emphasis on public investment. Growth in plan capital expenditure, or spending on building capital assets, has been 57% for the April-November period, while the growth in non-plan revenue expenditure, which is mostly spending on consumption and subsidies, has been only 8.6% y-o-y.

In fact, Morgan Stanley estimates that currently on a 12 month trailing sum basis, fiscal deficit is at 3.5% of GDP as compared to the government’s target of 3.9% of GDP for FY16. It expects FY16 fiscal deficit to come in marginally below the target, at 3.8% of GDP, due to supportive factors such as an increase in oil excise duties, service tax rate and lower oil prices.

Gr

saikat.neogi@expressindia.com

  1. H
    Hemen Parekh
    Feb 1, 2016 at 4:55 am
    STRUCTURAL REFORMS ? Speaking at the Global Business Summit yesterday , Shri Arun Jaitley said : " We will introduce Structural Reforms in the forthcoming Union Budget " What is the current structure of Union Budget ? # SOURCES of REVENUE * Taxes ( Direct Indirect ) * Borrowings ( Domestic Foreign ) * / Leasing of ets ( PSUs Natural National Resources ) # DEPLOYMENT of REVENUE * Administrative Expenses ( ries / Pensions / Maintenance / Subsidies , etc ) * Interest ( Prinl Amount ) on borrowings * Developmental Expenses ( Creation of new ets / Infrastructure ) * Lending Broadly speaking , this is the current structure Most of the time , all that the successive Finance Ministers have done is to slightly " Increase / Decrease " the " Sources and / or Deployment " of the funds , here and there Once in a while , some Finance Minister , even introduced altogether NEW source or a NEW way to spend the revenue ! But so far , no one has attempted to change the FUNDAMENTAL STRUCTURE ! I wonder whether Shri Jaitleyji's BUDGETARY REFORMS would incorporate the following Structural Changes for which , I have sent to him ( and to most of his cabinet colleagues ), dozens of emails ? : * Total abolition of Personal Income Tax ( Revenue Loss of approx Rs 2.5 lakh*crores ) * Introduction of 2% Bank Transaction Tax - BTT ( Revenue Gain of Rs 15 lakh*crores ) * Decreasing Corporate tax slab-rates based on No of permanent employees ( to encourage job creation ) * Perpetual Amnesty Scheme ( no questions asked as to the source for CASH deposits in Jan Dhan Accounts , if funds from these Accounts are invested in Govt approved INFRASTRUCTURE SPVs ) So far , Rs 30,000 Crores have been deposited in Jan Dhan Accounts . With introduction of this REFORM , that figure will rise a thousand times to Rs 30,000,000 Crores , within one year ! These investments will generate 10 million jobs each year and raise our GDP to 10 % in 2016-17 ! * Transferring 10% of GST ( ie 1.8 % out of 18 % ) to PPF accounts of the buyers ( increase Domestic Savings ) * Embedding of RFID chips in Currency Note ( read Kurzweilai ) to solve twin problems of BLACK MONEY and CORRUPTION * Introducing " Budgeting By Objectives " ( instead of Monetary Allocations, setting Physical Targets for Ministers ) * Quarterly Performance Review of " Targets vs Actual Achievements " to be published on Govt web sites * Thru an Online Opinion Poll , involving citizens in framing of the Ministry-wise Physical Targets before the budget After second World War , German Economy was in shambles 68 years later , Germans are still thanking their then finance minister , Ludwig Erhard , for the miracle ("Wirtschaftswunder," German for "economic miracle") he brought through his " Out of the Box " reforms to revive the German Economy I hope Shri Jaitley displays similar courage on 29 Feb 2016 - even if he is not bothered being remembered or not ! ------------------------------------------------------------------------------------------------------------------------------- hemenparekh / blogs 31 Jan 2016
    Reply
  2. R
    Rajesh Patil
    Jan 29, 2016 at 11:42 am
    Great analysis by FE on budget numbers. The tax collections are higher because of higher rates and not because of economic growth, which is in fact down
    Reply

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