By
K R Sudhaman
It is really unfortunate that after
three years of fiscal prudence, the Narendra Modi government has indulged in
profligacy in the interim budget 2019, apparently with an eye on general
elections in April and May, which is not good for the economy, already
witnessing strained macro-economic situation since 2018.
Crisil research is right in saying
notwithstanding the low oil prices, which helped government to follow a welcome
and prudent fiscal policy in the first three years, Indian economy started slowing down 2018
onwards resulting in tax receipts taking a hit. This led to revenue expenditure
overshooting and oil subsidy bill soaring.
Consequently fiscal deficit suffered,
slipping 20 basis points to 3.3 per cent of GDP despite a fall in capital
expenditure. Now, due to the need to address farm distress and support to
middle class, fiscal deficit has been stretched further.
Analysing the fine-print of the please
all election budget 2019, Crisil said for fiscal 2020, disinvestments will need
to be front-loaded to achieve the ambitious target of Rs 90,000 crore and tax
collections aggressively pursued. This will be important to keep the government
bond yields in check.
As it is CAG has recently pulled up
the government for the poor quality of fiscal deficit. The analysis of fiscal
situation in the last few years indicate borrowed money being utilized for
revenue expenditure is not good for the economy. Ideally fiscal deficit, which
indicated the amount of money borrowed, should fully utilized for capital
expenditure to push growth. Using borrowed money for wasteful expenditure like
subsidies and consumption expenditure not good
for macroeconomic stability.
Another rating agency India Raging and
Research (Ind-Ra) too was critical of the fiscal management in the interim
budget, which had sops for farmers, middle-class, unorganized labour so as to
deal with rural and farm distress ahead of elections. Some of the initiatives are no doubt welcome
and long-awaited but doing them without necessary financial wherewithal is not
good.
The revised estimate for Fy19 suggests
that fiscal deficit target will once again be missed, though the slippage is of
10 basis points. Ind-Ra believed that that revised fiscal deficit of 3.4 per
cent of GDP has an upward bias. Just as Crisil, Ind-Ra felt there will be
strain on fiscal deficit if the disinvestment target of Rs 80,000 crore was not
achieved. It also felt articulation of
10-year vision appeared more of a wish list than a concrete long-term plan.
The fiscal arithmetic of the 2019
budget indicated that the nominal GDP growth has been estimated at 11.5 per
cent. This looks reasonable but global factors can have a destabilizing impact
as witnessed in the current year. The aggregate tax revenue growth estimate of
14.9 per cent in 2019-20 is lower than 19.5 per cent achieved in revised
estimates of 2018-19.
“However a closer look at the estimate
of various tax revenue components does not inspire confidence. The goods and
service tax collection growth iin 2019-20 is estimated 18.2 per cent, whereas
the 2018-19 revised estimate growth pegs it at 9.1 per cent. This is a tall
order. A slippage of one percentage point in GST growth will wipe off Rs 3.7
billion from the budget estimate,” it said.
Revenue expenditure is budgeted to
grow at 14.4 per cent in 2019-20 compared to 13.9 per cent in 2018-19 revised
estimates. However the capital expenditure is budgeted to grow at only 6.2 per
cent in 2019-20 compared to 20.3 per cent in the revised estimates of 2018-19.
This shows that a significant amount of resources has been allocated for
various social welfare schemes announced in the interim budget, a departure
from the previous budgets. This will also have an implication in the quality of
fiscal deficit, which Ind-Ra believes will deteriorate in 2019-20.
Gross borrowing in 2019-20 is budgeted
to grow 33.1 per cent as compared to 9.3 per cent in 2018-19. However, net
market borrowing is budgeted to grow at 11.9 per cent in 2019-20 as compared
6.2 per cent in 2018-19. A larger market borrowing, besides making Reserve Bank
of India’s job difficult, will result in higher bond yield in 2019-20.
Although Ind-Ra believes that the RBI
will change its monetary stance to neutral from calibrated tightening in its
February 2019 policy review, the dynamics of a rate cut will become a difficult
exercise more so under the evolving global situation.
Ind-Ra also felt that besides
supporting consumption demand the budget should have also made attempts to
promote household savings, which has plummeted to 17,2 per cent in 2017-18 as
against 23.6 per cent in 2011-12.
Crisil chief economist D K Joshi said
that increase in disposable income for urban and rural India will provide a
kicker to consumption demand. Improvement in consumer sentiment will boost
demand for low value durables due to additional income of Rs 3000-10,000 in the
hands of consumers next fiscal.
On Infrastructure, Crisil COO Amish
Mehta said the revised capital outlay for infrastructure for the current fiscal
is 11 per cent higher than the budget estimate with civil aviation and power
seeing the highest achievement rations. A note of caution is, however,
warranted since actual expenditure this fiscal fell short by 10 per cent
compared with revised estimates then presented. (IPA Service)
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