Union Budget 2019: The growth of net tax revenue turned out to be 6% against 19% estimated (BE), so, the ask rate of growth to meet the Interim Budget target is now a daunting 29%.
Budget 2019 India: Caught between the twin goals of treading the fiscal consolidation path and keeping the flagship schemes and the stepped-up welfare programmes like PM Kisan adequately funded, the Centre may scale up expenditure financed out of extra-budgetary resources (EBRs) in 2019-20 steeply from the level of Rs 1.22 lakh crore envisaged in the Interim Budget to Rs 1.9 lakh crore. This will be the highest-ever EBRs raised through assorted public-sector agencies.
EBRs were to the tune of Rs 1.36 lakh crore in 2018-19, Rs 78,400 crore in 2017-18 and Rs 77,364 crore in 2016-17. Despite huge constraints on tax revenues, the Centre may retain the budget size at around Rs 27.8 lakh crore estimated in the Interim Budget presented on February 1, sources said. While economists and analysts denounce rising EBRs as these impinge on fiscal rectitude and drain out the household savings available for private investors to utilise, budget managers reckon that sustaining the EBR momentum is a short-term imperative for GDP growth recovery.
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The Centre’s net tax revenues (after devolution to states) in 2018-19 fell short by a massive Rs 1.67 lakh crore from revised estimate of Rs 14.84 lakh crore, mainly due to shortfall in goods and service tax (GST) and corporate tax revenues. The growth of net tax revenue turned out to be 6% against 19% estimated (BE), so, the ask rate of growth to meet the Interim Budget target is now a daunting 29%.
While non-tax revenue could be improved through strategic sale of PSUs and other modes of disinvestment, there is a limit to increasing such receipts. The government, of course has some cushion in the form of annual savings due to inability of some departments to fully spend their budget allocations; such savings could be about Rs 60,000 crore in FY20, like in FY19.
These savings and some additional Rs 10,000-crore disinvestment (over and above Rs 90,000 crore planned), would mean the Centre might still have a funding gap of Rs 1.86 lakh crore, which will likely be filled up via EBRs. The reliance on EBR could be lower if the Centre gets a tidy sum from the Reserve Bank of India without any pre-condition (such as the proceeds could only be used for recapitilisation of public sector banks) after the Bimal Jalan panel submits its recommendation on the economic capital framework of the central bank. Another possible route to bolster revenue is through new cesses or increase in surcharges on high corporate and individual earners.
After the Narendra Modi government returned to power in May-end, some additional spending obligations have also arisen due to expansion of the PM Kisan scheme (to cost additional Rs 12,000 crore in FY20) and launch of new pension schemes for small and marginal farmers as well as small traders (Rs 4,000 crore/annum). These additional spending, which were not accounted for in the Interim Budget, could be adjusted by rolling over payments for some prorammes or so.
Spending via EBRs — rather than through Budget — will allow the Centre to reduce the immediate impact on the fisc, as the repayments are calibrated over many years. These, however, add to the overall public debt and crowd out the private sector from the market as much as direct sovereign borrowings would do and put pressure on bond yields.