A distinction for presentation, first class for political messaging, and pass class for math!
Budget 2019 is arguably among the more lucidly articulated, cogently presented instances of political intent in recent years. In a speech spanning 100 minutes, Finance Minister Piyush Goyal had Prime Minister Narendra Modi and his colleagues thumping the benches.
Goyal’s essay ticked all the boxes—farmers, organised and unorganised labour, women, pensioners and the taxpaying middle class. It even tickled the market - the thesis being spend equals rise in demand and consumption and ergo cheer on Dalal Street. The budget delivers a jukebox of sop songs for every segment and a plank for the campaign.
Will the rural voter be lured by the income support of `6,000 per year or `2,000 every four months? It depends on the efficacy of implementation and the pin code of the beneficiary. Arguably `6,000 per year is a value proposition for those living in the states of Bihar and Uttar Pradesh, where per capita incomes are a third and half of national per capita income, with 7 of ten persons dependent on the rural economy. Critically, these two states are the theatre of challenge where the BJP is set to face its toughest battle. It is worth recalling that the launch of the biggest food security programme of the world did not help the UPA.
Whether the rebate in income tax will mollify the anger of urban low-middle income voter over the disruptive impact of demonetisation and GST again depends on the GPS of the voter and the EPS of the household. There is the fact that the rebate is limited to those under the Rs 5 lakh cap, and then there is the reality that the rebate is available to those who have jobs and incomes. Again, the caveat here would be that neither the 1997 dream budget of P Chidambaram nor the 2003 budget of Jaswant Singh swayed voter intentions.
The budget gets pass class for the math not because the numbers add up but because regimes in the past have been equally artful with the numbers. At best the math of the budget is fuzzy. The real constraint in the budget exercise is essentially in balancing expenditure with income and maintaining it through the year. On paper the ratios of fiscal deficit seem appropriate. However, two factoids reveal the delta between the revealed and the shadow deficit.
The 2018 Budget allocated Rs 90,000 crore as GST compensation for states, but will spend only Rs 51,735 crore—that is Rs 38,265 crore less. The explanation provided states: “lower requirements under compensation to states for revenue losses on rollout of GST.” Interestingly, the 2019 Budget, under GST Compensation Fund, has allocated Rs 1,01,200 crore—nearly double the expenditure the previous year, or a jump of Rs 49,465 crore. The explanation: “higher requirements under compensation to UTs for revenue losses on rollout of GST.” Have the losses of states under GST come down or has the expense been parked in the next year’s budget?
The second factoid relates to another big-ticket expenditure item. The Food Corporation of India oversees the management of public distribution. The FCI website reveals that the subsidy due from the government is sliding and the borrowings of FCI are rising. In 2016-17, it secured Rs 23,000 crore under ways and means and Rs 70,000 crore from the National Small Savings Fund (NSSF). In 2017-18 (the last year for which data is available), FCI secured Rs 50,000 crore under ways and means and Rs 121,000 crore from NSSF. Why is FCI paying around 9 per cent of interest and borrowing thousands of crores from the market? The occurrence smells of off-budget financing of expenditure and casts a shadow on the credibility of the claimed fiscal discipline.
The level of debt and deficit—explicit and implicit—and the possible consequences on investment, growth and job creation are worrisome but have not stirred or shaken policymakers and politicians. Historic data validates that this is perpetuated by political expediency. Between 2004 and 2014, government spending went up from Rs 1,365 crore a day to Rs 4,562 crore a day, earnings rose from Rs 838 crore per day to Rs 2,894 per day, and subsidies from Rs 125 crore a day to Rs 633 crore a day. To pay up, borrowings (gross borrowings, including debt servicing) rose from Rs 220 crore per day in 2004 to Rs 1,723 crore per day in 2014.
How has India done since? In 2014-15, the government spent Rs 4,605 crore per day, but its earnings were lower at Rs 3,085 crore a day, and therefore it borrowed Rs 1,404 crore per day. In 2019-20, the government will spend Rs 7,627 crore every day—including Rs 812 per day for subsidies on food, fuel and fertilizers. The earnings estimate of Rs 5,418 crore per day falls short of projected expenditure. It will, therefore, borrow Rs 1,928 crore a day—that is roughly Rs 80 crore per hour.
This year, interest payments will cost the exchequer Rs 665,061 crore, or Rs 1,822 crore a day. The question is not whether the government can or should borrow. The question is how much and for what. Must a resource-scarce economy be paying over 33 paise of every rupee it earns to pay interest for past borrowings?