By Gyan Pathak
Ask anyone, except our Prime Minister Narendra Modi and his Finance Minister Nirmala Sitharaman, what is the expected growth rate of India in 2019-20? The answer will be around 7 per cent which is based on calculations of all reliable national and international organizations. However, India’s budget for the current financial year has calculated India’s GDP, receipts, and expenditures at a growth rate of 12 per cent as against the recent fall in the actual growth rate to 6.8 per cent. Such a great exaggeration was resorted to make a good-looking balance sheet, but it would not help the government to overcome the financial mess of its own making. The false and magnified picture of the economy cannot conceal the reality.
GDP for 2019-2020 has been projected at Rs 2,11,00,607 crore assuming 12 per cent growth over the estimated GDP of Rs 1,88,40,731 crore for 2018-2019 (RE). It is clear that it cannot be achieved, and therefore India cannot realize the revenues at the projected level. However, it helped the government to show a better picture of the revenue deficit, effective revenue deficit, fiscal deficit, and the primary deficit. If India will grow at the rate of only 7 per cent, as it is expected, all the deficits in real terms and in percentage of the GDP are going to worsen which may put our government and the people in great trouble.
Fiscal deficit for the current year is projected at 3.3 per cent of the GDP. The same lever of the deficit was projected for the last year but it increased to 3.4 per cent in the revised estimate. Since fiscal deficit reflects the total borrowing requirement of the government, one can assume an increase in the borrowings to maintain the present status of our economy. The position of the fiscal deficit can be improved if revenue receipt and non-debt capital receipts could be increased. But the problem is that we are not going to have substantial increase in revenue receipt even when calculated at the projected economic growth of 12 per cent to meet our expenditure.
Revenue deficit is projected to worsen from 2.2 per cent of GDP last year to 2.3 per cent this year. The non-debt capital receipts are also not going to improve much unless the government decided to sell its assets, but it is a very painful situation. It is in this backdrop, the government plans large scale disinvestment along with domestic and foreign market borrowings through certain bonds. Sale of government bonds to foreigners have already been criticized on account of its nature of gambling, and the track record of foreign investors which may go against the country. What may go wrong will go wrong, says a traditional wisdom. Effective revenue deficit is also projected to worsen from 1.1 per cent of GDP last year to 1.3 per cent. Primary deficit is projected to remain at 2.2 per cent at the level of the last year.
The level of expenditure the government has proposed in the budget 2019-20 cannot be met on the real growth of the economy around 7 per cent, which is five per cent below the projected growth. Therefore, the public hope of more allocation will be shattered because government will not be able to release the amount of money proposed in the budget.
The real threat in shortfall in government receipt is looming large, but the government has limited options. The government has estimated Rs. 1962761 crore of revenue receipts in the current year against the revised estimate of Rs. 1729682 crore last year. Since real GDP will far less that the projected in the budget it is most unlikely that we will have that level of revenue receipts unless the people are squeezed more in taxes and the cost of goods and services are increased. The capital receipts also could not be increased much since the recovery of loan will be only Rs. 14828 crore, and other receipts in this head will remain almost the same at the level of 2017-18. Borrowing and other liabilities including drawdown of cash balance is projected Rs. 703760 crore against revised estimate of Rs. 634398 crore last year. The total receipt of the government is projected at Rs. 2786349 crore for the current financial year.
The revenue shortfall on account of exaggerated projection of the growth rate of our economy must be met with certain new measures to be taken in due course of time. What are the options before the government? Increasing the prices of goods and services may be the first option which can not only increase the non-tax revenue but also increase the tax revenue which will be charged at increased prices. Additionally, tax base can be widened to bring more goods and services and the people under tax-net. These will increase the cost of living for the common people who should be ready to face it.
Institutional and market borrowings, both domestic and international, may be increased for our immediate needs, thought it is potentially dangerous, since we are already spending 18 per cent of our revenue receipts in debt servicing. Subsidies may be further reduced, though a large number of people are not able to bear the actual costs of goods and services.
Agriculture production is likely to fall due to shortfall in rain. Prospects of substantial increase in industrial production are also very bleak. We are already running a huge trade deficit which may further aggravate due to trade war. We are also not able to reduce import and increase our export. International crude oil prices are most likely to rise. Remittances from Indians working abroad have limitations. In this scenario, government finances seem to be caught between the devil and the deep sea. Government will need to take hard decisions of squeezing the people a little more, and increase its borrowing and selling assets created by earlier governments. All these means the people of the country is heading towards very difficult days, may be sandwiched between the ruthless market forces and the tough government decisions. (IPA Service)
