Irrespective of whether or not the budget is regular or an interim document, it would always be interesting to read the wording and the content of the proposals. That’s so because all budgets are clothed in eloquent language and take one through the achievements of the year with some prophesies for the future. It is not surprising that the main pain points are never revealed and one has to skim through the documents to get a hold of them. Selective numbers are presented, which become highlights to be commented on until the fine print comes to the surface. Let us see what all one should read more carefully.
The first is the fiscal deficit and whether the target has been met at 3.3%. But this is a statistical number and the numerator can change as there is legitimate scope to roll over expenditures, overstate revenue (there are still two months left to garner revenue), defer some expenses or just cut back on some expenditure. All these are possible and hence the discussion is more academic.
Second, the disinvestment estimate will be of interest as the present data suggests that we are well short of the target of Rs 80,000 crore. If the revised number remains unchanged, then the stock market can breathe easily as this would mean there would be more of PSUs cross-selling and buying as it is not possible to raise Rs 40,000 crore in two months following the due processes. To that extent, this will be neutral in effect.
Third, the gross borrowing programme for the coming year will be important. Even though it would be an interim budget and numbers can change, it is normally assumed that the gross borrowing programme will normally not be altered in June or July as there would be too much of disturbance in case it does happen. The number can be anywhere between Rs 6-6.5 lakh crore for FY20 and here too there is flexibility. The government can use more of NSS (small savings), use buybacks selectively or draw down on cash reserves to ensure that the market is not spooked. This has been done in the past and will be done again. This is why the fiscal deficit number finally matters when evaluating shortfalls in revenue and not the gross borrowings.
Fourth, there will be a lot of talk of how the tax base has increased. A curious fact is that during 2012-13 and 2015-16 the number of individual income tax assesses increased from 28.92 million to 40.74 million and then spiked to 46.38 million in 2016-17 post demonetisation. But in 2017-18, the total was just 46.67 million. Thus, there does seem to some tapering of the increase. In fact, 2015-16 and 2016-17 witnessed an increase of 4.64 million and 5.64 million assesses at the individual level. Interestingly, in 2017-18, of the 46.67 million assesses, almost 20 million did not pay tax. Thus, these numbers may not mean much in terms of collections.
Fifth, with a lot of wooing of the poor in the last few months, there is always interest on what the budget can do especially for loan waivers. Speaking on the pulpit is one thing for any party, but actually doing something through allocation of funds is more important and challenging. One has observed that while several states make bold announcements of farm loan waivers, these provisions are never made in the budget and can be phased over a period of time. This is so because there is limited fiscal space. Also, often the budgeted numbers are high but the revised ones are much lower, as was witnessed for the smart cities too in the earlier budgets. Therefore, before one takes umbrage at the fiscal disruption caused by such announcements, it is necessary to check if such provisions have really been made.
Sixth, the narration of the achievements of the government during the year is probably the less controversial as it is based on facts and may not be related to the budget. This is a standard or classic Potemkin effect where every government presents the better part of the story, which is usually very convincing. But this will not have a bearing on the budgetary numbers.
Seventh, the capex statement is rarely spelt out in the budget. The government outlays on various infra projects is a standard part of the speech where large numbers are spoken of. Here again, like pro-poor programmes, there would never be time-lines or would be futuristic like 2025 target, if not the next five years. It is hence necessary to go through the individual department layouts to figure out where the money is being allocated.
(Two things need to be highlighted here. The first is that the size of the capex of the government last year was Rs 3 lakh crore, which is much lower than the numbers spoken of in the budget. A substantial part of fund-raising is done by PSUs, which fall outside the ambit of the budget and hence do not get counted in the fiscal deficit or debt, though are covered widely in the speech without being qualified. Second, the budgeted capex number is the discretionary part of the budget that can be compromised any time with cuts, as it is not committed. Now, since 2009-10, on five occasions there have been slippages that range between 12-18% of what was targeted. The current government slipped by Rs 30,000 crore in FY15, but exceeded the target well in the subsequent two years (Rs 12,000 crore and Rs 37,000 crore, respectively), but faltered in FY18 by Rs 37,000 crore. Quite clearly, not doing such a cut would have increased the fiscal deficit by 0.2% to 3.7%. Once again, fiscal prudence scores over rhetoric at the end of the day.)
Eight, with all the controversy over the transfer of reserves of RBI, it would be expected that there would be some mention of the way forward. While the appointed committee would present its recommendations in March, there should be some indication on how the money will be used, which can be for financing the budget or recapitalising PSBs.
Nine, with competitive talk now by all parties on providing a basic income to every poor individual, the necessity of this will be spoken of in the budget. However, as the funds have to come from the budget, and if at all taken up would be by merging existing schemes. Therefore, one should sift between the rhetoric and the practical application of such a principle.
Last, there is a ubiquitous appeal to the farmer community in terms of target set for bank lending to agriculture and the levels will be spelt out. Isn’t there something called priority sector lending where banks perforce have to lend 18% of their resources to farmers? But that is how the narrative always goes.
The Union Budget is probably the biggest national economic event that is heard by almost everybody in the business community and receives more headlines than any other presentation. Unlike corporate discourses where the basic numbers and announcements are placed in a power point presentation, the speech is long and filled with aspirations and achievements. One needs to read between these lines to separate the facts from the harmony or noise.
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