Over the last couple of years the government has started presenting what one could call ?make-believe? budgets. Our budgets have been prepared based on unrealistic assumptions both on the revenue as well as expenditure front, despite contrary data points and adverse trends. Even if tighter assumptions were to be used, the assumptions do not seem to have been monitored to make the budget work. This is why the fiscal deficit in 2011-12 slipped from 4.6% of GDP to 5.9% of GDP. People who had read the fine print of the budget knew it was coming. What is shocking is the fact that budget 2012-13 has again estimated a low fiscal deficit at 5.1% of GDP using exactly similar unrealistic assumptions.

At the beginning of fiscal 2012, stresses in the economy were evident. Despite this, high revenue assumptions of 19% were made on direct taxes collections. On the non-plan side, growth in expenditure was assumed as zero, despite an escalating oil price and the reality of coalition politics. Oil subsidy was budgeted at a low R23,641 crore. The subsidy bill went out of control along with lower direct tax collections and the result was the high fiscal deficit.

In the first nine months of 2011-12, our economy had grown by only 6.9% against 8.1% in the previous year and the growth assumption of 9%. Despite this, budget 2012-13 assumed a GDP growth of 7.6%. Even with this information about lower growth, high oil prices, a rapidly depreciating rupee and, consequently, the need to increase price of petroleum products and the failure of our oil policy in the previous year, budget 2013 made pious statements about restricting subsidy and hardly made any provision for oil subsidy for the year!

An increase of 27% in tax revenues in 2012-13 was also made on the indirect side with a 20% increase in indirect tax rates (from 10% to 12%) and the balance coming from growth. The first four months have shown indirect taxes growing at 16% only. Table 1 shows budgeted and actual tax revenue, with growth projections for 2012-13.

The same pattern can be seen on the expenditure side. Table 2 shows actual and budgeted expenditure.

The non-plan expenditure was under-provided in 2011-12 and a bulk of that additional expenditure can be attributed to subsidies. Table 3 highlights the amount overspent on subsidies in 2011-12 and the under-provision in budget 2012-13.

Sadly, this lack of perspective on oil subsidy and under-budgeting in fiscal 2013 has made the budget another ?make-believe? one, devoid of honesty and reality. In fact, almost the entire oil subsidy budget for 2012-13 has been spent by the government by paying R38,500 crore during April-June 2012 towards under-recovery of oil marketing companies during the period January-March, 2012. During the first five months of fiscal 2013, there has been no increase in diesel or kerosene prices to keep the subsidy in check. We are now left with a situation where there is hardly any subsidy provision left in budget 2013 and the oil marketing companies have declared a loss of R40,000 crore during April-June 2012. At the current rate, the oil subsidy for this year is estimated at more than R1,50,000 crore. This, along with the amount of R38,500 crore carried forward from last year, would increase fiscal deficit to around 6.5% of GDP.

Even on the divestment front the government has significantly fallen short of budgets over the last two years. The divestment proceeds in 2010-11 and 2011-12 were 55% (R22,144 crore against R40,000 crore) and 35% (R14,000 crore against R40,000 crore) of the budget. In the current year, they have been budgeted at R30,000 crore. In addition, over R40,000 crore on auction of 2G spectrum has been estimated as a non-tax revenue and action on this is starting now.

But what is more worrying is the blatant lack of honesty and reality in budget making, misleading Parliament and the citizens of India. We have been reduced to being given ?make-believe? budgets for two years in a row now. With Parliament becoming dysfunctional due to political activism and no real debate on the budget having taken place, we face the bleak prospects of another lost year and downgrading of our credit ratings globally.

The authors are with Aarin Capital Partners