Union Budget 2021-22: Long on Promises, Short in Content | A Sunil Dharan

by A Sunil Dharan

The Finance Minister’s budget speech gave us the impression that she has pulled off the impossible. She has, apparently, presented an expansionary budget with thrust on capital spending and increased expenditure on priority areas like health. At the same time, by projecting a fiscal deficit figure for 2021-22 which is much lower than the revised estimate for 2020-21 she has put the economy on the path of fiscal consolidation. The speech is replete with hyperboles regarding the government’s achievements and its intentions. But the devil, as they say, lies in the details.

A careful perusal of the numbers tells an entirely different story. In her speech, the FM highlights that the proposed capital expenditure for 2021-22 is 34.5 per cent higher than the budgeted estimate for 2020-21. But, to bring out the expansionary thrust of the budget, the relevant comparison is with the revised estimate of the previous year. Here the increase is more modest — 26.2 per cent, an increase of about Rs. 1,15,000 crores.

What the speech does not highlight is that the revenue expenditure has been brought down significantly by about Rs. 82,000 crores. As a result, the total expenditure goes up by less than 1 per cent, for an economy which is likely to end up with minus 7.7 per cent growth this fiscal year.

It can be argued that the composition of expenditure has been shifted in favour of capital spending, which is good for the economy. However, it is pertinent to note that while expenditure on capital projects is important for the long-term growth of the economy such spending takes time to fructify and, therefore, may not help in quick recovery from the recession. Increased expenditure on employment generation and other welfare programmes, which directly benefit the poor, would have aided faster recovery apart from providing relief to those who lost their incomes or were rendered jobless during the pandemic.

The Gross Fiscal Deficit of the Central Government for the year 2020-21 that was pegged at 3.5 per cent of GDP has increased to 9.5 per cent (Revised Estimate). This cannot be attributed to a runaway increase in expenditures during the pandemic. While the expenditure figure does show an increase, by about 13 per cent, the fall in revenue is of a larger magnitude. Total receipts excluding borrowings have come down (Revised Estimate over Budget Estimate) by almost 29 per cent. Of this, revenue receipts are down by about 23 per cent. This can be seen from the charts given below. Figures 1 and 2 show the gap between the budget estimates and the revised estimates of total expenditure and total receipts excluding borrowings respectively, for 2020-21 and for the preceding five years. It can be seen that the deviation of the revised estimates numbers from the budget estimates is much more in 2020-21 as compared to the past five years. This being an extraordinary year the actual expenditure and revenue figures could further deviate from the revised estimates.

As per the data provided by the Controller General of Accounts, only 66 per cent of the revised estimate of Total Expenditure had been spent till the end of the third quarter. So, the remaining 44 per cent is expected to be spent in the final quarter. Whether such large expenditure would be made in the closing months of the fiscal year remains to be seen.

True, the revised estimate of the expenditure for 2020-21 is more than the budget estimates by about 13 per cent. But this is largely because of cleaning up of the accounts of the government and not any real increase in expenditure. As the FM mentioned in her speech, the government has discontinued the loans to Food Corporation of India from the National Small Savings Fund (NSSF) and that has been incorporated in the revised estimates for 2020-21 and budget estimates for 2021-22. With the reduction in off-budget borrowings, expenditures hitherto not shown in the budget are now reflected in the budget numbers, a welcome move towards more transparency in the budget and improved credibility of budget numbers. Consequently, the expenditure on food subsidy that was budgeted at Rs. 115569.68 crores for 2020-21 nearly quadrupled to Rs. 422618.12 crores (Revised Estimate). Similarly, the fertiliser subsidy, has almost doubled from Rs. 71309 crores (Budget Estimate) to Rs. 133947.30 crores (Revised Estimate).

For 2021-22, the budgeted figure for fiscal deficit is 6.8 per cent. This has been arrived at by controlling expenditures and optimistic projections about revenue growth. While total expenditure is projected to increase by less than 1 per cent over the revised estimates for 2020-21 tax revenue is projected to grow by 14. 9 per cent and total revenue receipts by 15 per cent. All these when the projected rate of growth of nominal GDP is 14.4 per cent. Whether this can be achieved in the present circumstances is anybody’s guess.

Moreover, the government seems to have pinned its hopes on raising resources through disinvestment and monetisation of public infrastructure. A number of PSUs have been identified for disinvestment. The FM has promised to bring in legislative changes to privatize two public sector banks, one general insurance company and issue of IPOs by LIC. No wonder, the SENSEX shot up on the budget day! All these are projected to fetch Rs. 1,75000 crores. Leaving aside the question of desirability of selling family silver to fill the budgetary gap, this target is not likely to be realised, going by past trends. The budget for 2019-20 had projected to raise Rs. 105000 crores from this source but the realised amount is only Rs. 50304 crores (actuals). Similarly, for 2020-21 the government had targeted to raise Rs. 210000 crores but has brought it down to Rs. 32000 crores (Revised Estimate). However, till end-December the amount raised is only Rs. 18896 crores. Given this context, the targeted figure in this budget is also not likely to be realised. Also, setting targets for disinvestment, especially when the government’s finances are under strain, would depress prices of these assets because the buyers would have upper hand in such conditions.

If the over-optimistic growth and revenue projections are not achieved the government would fall short of resources to meet the expenditures, which will be compressed leading to slower GDP and revenue growth, unless the government lets the fiscal deficit to rise. In that case, the axe would typically fall on discretionary spending — public investment and expenditure on welfare heads.

The pandemic and the lockdown of the economy had caused immense suffering to the people, especially the lower-income groups. According to the recently released OXFAM report on inequality, while the wealth of India’s billionaires went up by 35 per cent during the lockdown 1,70,000 people lost their jobs every hour in the month of April alone.

This scenario calls for a more progressive fiscal policy, raising more resources at the top and spending the money on the lower income groups. Apart from providing relief to the poorer sections this would also have helped in faster recovery of the economy. But there is nothing in the tax proposals or in the allocations that suggests a trend in this direction. The budget speech mentions ‘inclusive development for aspirational India’ as one of the six pillars of the budget but the allocations do not match the claim.

The allocation for Mahatma Gandhi National Rural Employment Guarantee Program is more than the budgeted figure for 2020-21 but is less than the revised estimate. The demand for jobs under this scheme had shot up during the lockdown and is likely to remain high because the employment scenario continues to remain bleak. The budget should have allocated more funds for this to accommodate the larger number of workers. MGNREGS being a demand-driven scheme, the actual spending could turn out to be higher. Suggestions for an urban employment guarantee scheme on the lines of MGNREGS have not been incorporated.

The Finance Minister had ‘once in a century’ opportunity to present a budget to increase demand, revive investment, generate employment and make basic services accessible to all. In other words, this was an opportunity to revive growth and make it more inclusive. But the budget presented on February 1, falls significantly short of that.

(The author teaches Economics at Motilal Nehru College, University of Delhi)