Herald View: A Union Budget with too many holes

Besides being an insipid and unimaginative Budget that pushes structural reforms of the economy to the backburner, the Union Budget 2019-2020 should also be known as the first Budget in post-Independence India which possibly overstated its revenue earnings by a whopping percentage point as compared to the figures put out by the Economic Survey. It translates into a ₹1.7 lakh crore fiscal hole in the country’s financial accounts. The Budget uses what is called the Revised Estimates while the Economic Survey uses what is known as Provisional Actuals, an updated, more accurate estimate of government accounts.

The Revised Estimates used in the Budget show earnings of ₹17.3 lakh crore in 2018-19, while the updated, provisional accounts in the Economic Survey show that the government earned only ₹15.6 lakh crore. Not just that, the Budget document as presented by Union Finance Minister Nirmala Sitharaman is based on an annual 8 per cent GDP growth premise while the Economic Survey has pegged it at 7 per cent. These are likely to make the government’s task of sticking to its fiscal deficit target extremely difficult without introducing drastic cuts in the allocations made in the Budget. It won’t be an exaggeration to say that the Union government has taken liberty to play with the numbers to present a less pathetic picture of the economy.

One is afraid that the opacity does not end there. Looking at the revenue collection data, actuals from 2017-18 and Controller General of Accounts data of 2018-19, we see Income Tax grew at 7.1 per cent on an average per annum. The Budget projects the same to grow at a whopping 23.25% in the next fiscal. The government has estimated that Customs Duty, which showed negative growth at minus 8.6 per cent in 2017-19, will now grow by 32 per cent. Union Excise which has been flat is slated to grow by 15.5 per cent. And GST collections, which grew by 3.38 per cent in 2017-19 is suddenly expected to jump by 45 per cent. One can’t help but take such lofty overestimates with a pinch of salt. Another major drawback of the Budget is that it exposes the government’s faulty line of thought on addressing economic growth. This government seems to believe more investment without reforms will essentially translate into economic growth.

At a time when domestic consumption is showing a downward or, at best, a stagnant trend, such optimism is misplaced. Output is unlikely to rise if the lack of demand persists. The Incremental Capital Output Ratio is also showing no chance of coming down. The government’s allocation for recapitalisation of banks is also inadequate.₹70,000 crore may not be enough to even offset the current year’s losses, not counting the ₹8.5 lakh crore worth of NPA’s. The Budget also conveniently forgets India’s poor for the betterment of whom, massive investments are required in healthcare, education, etc. This Budget is neither pro-industry, neither pro-poor. It has sought to appeal to the salaried middle class vote bank of the ruling party by hiking the Income Tax exemption limit for home loan interests. Whether that boosts the housing market, which has seen a downward spiral since 2016-2017, remains to be seen. However, the chance of a directionless Budget galvanising India’s economic engine appears highly unlikely.