As expected, the interim budget in the election year tried very hard to appease the farmers and the middle class by providing schemes and incentives. Direct income transfer of INR 500 per month to the bank accounts of around 12 crore small and marginal farmers is the biggest of them as the programme entails an annual expenditure of INR 75,000 crore. This amount is bigger than the MGNREGA, which has been allocated INR 60,000 crore in the budget.
Though it may not resolve the fundamental reasons behind the grave agrarian crisis the country’s farm sector is facing currently, the move is expected to bring in some relief for the farmers. Up to two hectares limit will also cover around 85% to 90% of the small and marginal farmers. However, as always, the landless labourers, who bear the worst brunt of any agrarian crisis, are left out. And the uniform transfer of INR 500 per month ignores larger problems faced by the high-stress agricultural regions. But overall this is a welcome step.
Similarly, measures like modifications in the new pension scheme (NPS) and pension schemes for unorganised sector workers are also welcome steps, in a broader perspective. Middle class also will have some relief in terms of the rebate till INR 5 lakh (INR 6.5 lakh if the person avails the exemption by making INR 1.5 lakh savings).
Going with the ruling party’s ideology and obsession with the national security, the defence budget crossing the INR 3 lakh crore mark is also not surprising. OROP (one rank, one pension) will take a sizeable amount of that allocation.
However, looking at the receipt side of the budget, the question which will arise in anybody’s mind is – where all these money will come from?
The one-rupee revenue pie diagram in the “Budget at a Glance” document reveals that the government expects the GST (goods and services tax) and overall indirect tax collections to go down, and it is banking on substantial increase in direct tax collections – both in corporation tax and income tax.
If we compare the budget estimates of this interim budget with the 2018-19 budget estimates, then corporation tax is estimated to increase by a whopping 22.4%, which is an increase of INR 1.39 lakh crore in collection. Similarly, income tax collection is budgeted to increase 17.2% in 2019-20, compared to last year’s budget estimate, which is once again a heavy increase of INR 0.89 lakh crore in collection.
If we go back to the last year’s budget to find out the corresponding growth rates in corporation and income tax collections’ budget estimates, then we can see corporation tax collection was estimated to increase by 15.3% and income tax by 20% over the previous year.
This spurt in expected revenue from corporation taxes is quite inexplicable, given the fact that the economy is visibly faltering and unemployment rates are reaching a 45-year high, particularly among the young aspiring working population. Do the current earnings of the corporate sector justify such an increase in corporation tax collections in 2019-20? It does not seem so.
Though income tax collection budget estimates look realistic, one has to consider that around 3 crore income tax payers are going to get full tax rebate in the next assessment year, and the revenue foregone cannot be only INR 18500 crore, as stated in the budget. Not every tax payer in the current fiscal year’s INR 2.5 lakh to INR 5 lakh slab would not be paying just (18500/3) = INR 6167 as income tax. That is impossible.
Even expectations about GST collection looks quite overestimated. If we see the revised estimates for 2018-19 from budget documents, then there is a shortfall of INR 1 lakh crore when compared with the previous year’s budget estimates. When actual figures come in, the shortfall might even increase further. In the last fiscal year, GST collections fell short of its target quite alarmingly.
As a result of this revenue shortfall, the central fiscal deficit is up by INR 10,000 crore from what was budgeted last year. The gap is expected to be filled up by market borrowing. Moreover, this interim budget has cut the States’ share in central taxes by a substantial INR 26,639 crore from the last year’s budget estimate under the same head.
Revenue projections made for 2019-20 in the budget are quite incredible in the sense that total tax revenue is projected to increase by INR 3 lakh crore next year. Out of which GST collection is projected to increase by INR 1.17 lakh crore.
These budget estimates on the revenue side put question marks on all the lofty schemes which are announced in this budget.
Is this government trying to leave an unmanageable mathematics of resource mobilisation to the next government? Or, is this government going to resort to off-budget borrowings to fulfil its promises and leave the debt burden upon the next government? Or is this government making promises which subsequently it will fail in implementing?
These are the questions which need to be analysed with detailed data in the coming days.
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Abhijit was Senior Fellow with ORFs Economy and Growth Programme. His main areas of research include macroeconomics and public policy with core research areas in ...Read More +