The government is facing a fiscal crisis amid a slowdown that appears to be intensifying. This is the only conclusion that can be drawn from the recent release of the updated data. The index of industrial production (IIP) fell for a second consecutive month in September, this time by 4.3 per cent. This was after a 1.4 per cent fall in August. The September contraction is the highest since the new series of the IIP
was introduced in 2012, and compares only to a 5 per cent drop in October 2011, when the post-crisis stimulus began to lose its effect and India was moving towards a long slowdown. While the IIP
is often justly criticised for flaws or for being over-responsive to certain sectors, it is likely that the second quarter figures for gross domestic product will reflect this slowdown in industrial output.
Meanwhile, the government has also released its figures for revenue and spending in the first half of the fiscal year. It has spent Rs 13.44 trillion of its Budgeted spending of Rs 27.86 trillion, and its receipts are Rs 8.37 trillion out of a Budgeted figure of Rs 20.82 trillion. While the proportions that have been spent are in line with past trends, the fact is that the actual for last year featured a considerable revenue shortfall. As a consequence, the final Budget numbers were criticised for having a deceptive figure as the fiscal deficit number, since it did not really represent the scale of public-sector borrowing. The government shoved some of the responsibility for financing its expenditure on to public-sector enterprises which borrowed in the market. Even if revenue grows as expected, a similar exercise will likely have to be carried out this year, further impacting the credibility of government numbers.
However, the position this year might be even worse than the last year, when concerns about tax collection are taken into account. This newspaper has reported that the income tax department will ask for a further reduction in the targets for direct tax mop-up in the ongoing financial year, perhaps by as much as Rs 1 trillion. Corporation tax
was budgeted to grow by over 15 per cent in the full year, but has in fact grown by only 0.5 per cent till October, while personal income tax grew by a healthier 5 per cent — but against a target of over 22 per cent. Given that corporation tax
rates have been slashed, increasing direct tax collection by 30 per cent or so, required in order to meet Budget targets over the remaining months of the financial year looks unlikely. The government has sought to rein in aggressive actions by tax officials. How it will otherwise meet its targets remains a mystery.
The Budget drafting process will start soon. It is for the government to provide a clear, transparent, and accurate picture of India’s troubled finances in order to restore its lost credibility. It is already clear to observers that the numbers are not good; the Budget should not seek to conceal the true situation.