Rarely has a government of India budget come apart so spectacularly as this one has. There are three key assumptions that make a budget?the receipts, mainly taxes, the expenditure plan, and, based on these two, the resulting deficit or surplus. The fourth is the reputation that sticking to these assumptions provide to the annual plan of the government.

Finance minister Pranab Mukherjee first changed his market borrowing plan, his officers then announced a change in their tax projection that will help them fill up the gap, and now the second supplementary budget of this year will tell us how far off course the expenditure plans have strayed.

If, in the process, RBI finds it difficult to take a call on which way it should move the rates, one should feel sorry for the Governor.

As of now, the gap in the budget numbers, the finance ministry has told us, is R53,000 crore. Of these, about R35,000 crore is estimated to be the net outflow from the National Small Savings Fund. The problem here is there are no independent estimates made by any agency of the annual flow to and from the Fund. Thus, the hole in the Fund could be bigger or smaller and the world outside has no means of knowing. Since the difference is far lower than the disinvestment target of R40,000 crore, this implies the ministry is still hoping it would make some market offers later this year. If that turns out to be difficult, Pranab Mukherjee will be facing a mismatch of nearly R1 lakh crore soon.

Since additional market borrowing mean the yields on government papers will go down, banks would naturally want to know if the government would, therefore, stick to its numbers or borrow less. In the last fiscal, the ministry had cancelled the last tranche of borrowing as it was flush with the receipts from the 3G auction. But to add to the confusion (in enemy ranks?), the Central Board of Direct Taxes has revised its tax target, asking its field formations to fill in the gap, thereby giving an indication that the government might not stick to the new calendar. If all this was so easy, why did the finance ministry bother to announce the additional market borrowing?

The sequence of changes is quite educative. Although this is probably one of the most challenging fiscal years the finance mandarins have faced in a very long time, by approaching the budget numbers in reverse order, Mukherjee and his team have made the process more complicated.

The finance ministry had obviously decided it will shoot for a fiscal deficit that looks attractive for the minister to present, rather than what the state of the economy warrants.

In budget 2011-12, the fiscal deficit was, therefore, estimated at 4.6% of GDP. For 2012-13, the projected fiscal deficit is 4.1%, and the finance minister had, at one point, said he is on course to exceed it.

Meeting these targets would require the gross tax revenue-to-GDP to reach 10.4% this year and improve to 10.8% next fiscal. Within this, direct tax receipts need to reach 5.9% of the GDP in this fiscal (a 0.2% rise from that of 2010-11). The government arrived at this rate of growth by assuming that the economy will return to the trend rate of tax collection from 2003-04 to 2007-08 of about 19%?the pre-slowdown years.

For indirect tax receipts, the percentage is expected to grow to 4.5 in 2011-12, and to 4.7 next year.

Total expenditure of the government will then need to stay within 14% of the GDP. Since plan expenditure is not being curtailed, it needs an aggressive cut in non-plan (which includes subsidy) to come down to 9.1%, from 10.5% in last fiscal.

The finance ministry, of course, has little control over expenditure, but now it seems this also applies to tax receipts.

The numbers mean that, especially on the direct tax front, the department has not kept room for any slack in the performance of the economy.

Last year itself, the department found it difficult to meet the tax numbers?so companies were cajoled to pay extra taxes. As evidence, just look at the pace of refunds. As the finance minister has not doled out enormous tax cutbacks this year, which would have occasioned such huge refunds, the implication is these are the sums parked with the tax commissioners typically at the end of the year to make good the math. In the first half of this fiscal, the income tax department has paid out R62,000 crore and is still paying it. It is difficult to remember, for the recent years, such a similarly prolonged pay out.

Net those numbers from the revised estimate of direct tax receipts and there is a dip of nearly 14% from the total. The tax revenue-to-GDP share calculated on the new base shows a slip from 10% to slightly above 9.8%.

Net of the refunds, the direct tax collection in this fiscal is rising by only 7%, against the trend rate of 19% required for the year. And, remember, the department has taken on an additional R53,000 crore to mobilise. As income tax officers across the country were summoned to Delhi to work out the implication of the new targets this week, privately they agreed they will have to again ask companies and high net worth individuals to fork out additional sum to met the gap.

The refunds will pour back into the economy next year. By any reckoning, these are substantial fissures in the budget exercise of 2011-12.

As we said before, the key assumption of the budget-making exercise is the integrity of its numbers and, therefore, reputation. Sadly, the way the numbers are stacking up, those key elements are fading rapidly.

subhomoy.bhattacharjee@expressindia.com