Of course, the bottom-line number, the fiscal deficit as per cent of gross domestic product (GDP), has remained unchanged at 3.4 per cent for 2018-19. But, most disconcertingly, the net tax revenue numbers have shrunk from the revised estimates (RE) — by about 11 per cent, or Rs 1.67 trillion, from Rs 14.84 trillion in RE to Rs 13.17 trillion as per the provisional actuals. Similarly, the provisional actuals for revenue expenditure in 2018-19 are lower by Rs 1.32 trillion, compared to the RE numbers. The reduction has been achieved by transferring this expenditure burden to the accounts of a clutch of public sector undertakings (PSU), whose borrowings have gone up as a result.
Thanks to such huge off-Budget borrowings, some minor increases in non-tax revenues, compression in capital expenditure and an increase in the nominal size of the GDP, the government’s fiscal deficit was contained within the RE number of 3.4 per cent. But the question here is why the government’s net tax revenues fell by 11 per cent compared to the RE, and why the government sought recourse to off-Budget borrowings to compress its expenditure.
And the bigger question, and indeed the challenge, would be how Ms Sitharaman explains this huge revenue slippage and off-Budget borrowings on July 5 when she recounts the 2018-19 numbers. Politically, it could be an embarrassing moment. A new finance minister of the Modi government would be explaining what went wrong with the revised estimates in the interim Budget, presented by another finance minister of the previous Modi government. Remember that when Arun Jaitley presented the first Budget of the Modi government in its first term on July 10, 2014, he had the option of deviating from many of the numbers that Palaniappan Chidambaram had put forward in the interim Budget for 2014-15, presented in February 2014, before the general election. But Jaitley stuck to those numbers, even though he had both the economic as well as the political justification of deviating from them.
Unlike Mr Jaitley, Ms Sitharaman does not have the political leeway of deviating from the numbers presented by her party colleague, Mr Goyal, in the interim Budget in February 2019. Yet, given the way the economy has behaved in the last five months and how the government’s tax collections have fared, Ms Sitharaman faces the economic necessity of significantly revising those numbers. That is her first challenge.
Ms Sitharaman’s second challenge stems from the fact that her Budget will have to make things work only in the remaining three quarters of the year. The first quarter of the year is already gone and the numbers for this period do not augur well for either the government’s revenue or its subsidies payment.
The interim Budget had projected a goods and services tax (GST) revenue of Rs 7.61 trillion in 2019-20, inclusive of central GST, integrated GST (IGST) and GST compensation cess. But the GST revenue so far collected in the April-June 2019 period is estimated at just about 19 per cent of the annual target, and that too after cornering a little more than 40 per cent of the share in IGST. Corporation tax collections in April and May have seen a drop of 51 per cent, though the June advance tax collections, whose final numbers are yet to be made public, appeared to have picked up. Income-tax collections in the same period of two months rose by 15 per cent, but these offer no solace as the interim Budget numbers suggest a revenue growth target of 32 per cent over the provisional actuals of 2018-19. Customs revenue alone has maintained a steady increase — of 21 per cent in April-May 2019, against an annual growth target of 12 per cent. On the petroleum and fertiliser subsidies payment front, disbursements in April and May alone have been more than a third of what was allocated for the whole of 2019-20.
In short, Ms Sitharaman’s second challenge appears to be even more formidable. She has to place under close scrutiny most revenue and subsidies payment numbers given in the interim Budget. And if those numbers have to be revised and scaled down a bit to reflect the ground reality as it obtains at present, the fiscal deficit target set at 3.4 per cent of GDP for 2019-20 may well be a casualty. How well Ms Sitharaman manages that tightrope walk is a question whose answer would be known this Friday.