Finance Minister Nirmala Sitharaman may not have shown her unease over the growth slowdown, but she decided to respond to the crisis with conservatism.
For, both revenue and expenditure growth forecasts are pegged moderately not just for FY20 but for the next two years. And by doing so, Sitharaman hopes the fiscal deficit beast will be tamed once and for all, to settle at the FRBM-mandated 3 per cent of the GDP by FY22.
For FY20, revenue and expenditure will grow at over 13 per cent each, in line with the historical growth trend. But the granular data gives economists and policymakers the chill. Within revenue, gross tax revenue, comprising a lion's share of total revenue, is expected to grow at a modest 9.5 per cent to Rs 24 lakh crore, while indirect tax collections, which printed 16 per cent lower than FY19 estimates, are forecast to register a bare minimum growth and settle at Rs 11 lakh crore. Worse, there seems to be no respite from dismal GST revenues until FY21 by which point it's likely to get streamlined. For the current fiscal, GST growth targets are set to grow at a mere 3 per cent.
These estimates are already rattling ratings agencies. Just hours after the Budget speech, Moody's India raised the alarm on missing the FY20 fiscal deficit target should tax revenue underperform, like it did last year. More generally, the headline deficit may be achieved but through reliance on one-off revenue such as disinvestments and transfers from the central bank, and off-budget spending, it warned.
Perhaps, the finance minister herself is concerned about prevailing uncertainties and chose to extend conservatism to the next two years as well. For instance, gross tax revenue is expected to grow by 10.6 and 12.4 per cent in FY21 and FY22 respectively, while expenditure too will grow at a lower rate in next two years, mainly on account of lower revenue expenditure. It's expected that the targeted fiscal deficit of 3 per cent of GDP will be achieved in FY21 and continued thereafter. The upshot is that direct taxes will grow at a faster clip of 13.4 and 14 per cent in the next two years, provided tax rate or slabs aren't changed.
Meanwhile, disinvestment proceeds, comprising both the sale of PSUs and PSU's strategic assets, are budgeted at Rs 1.05 lakh crore, though they are moderated to Rs 80,000 crore both in FY21 and FY22. Interest payments, the largest component within revenue expenditure, shot up at nearly 14 per cent from Rs 5.8 lakh crore in FY19 to Rs 6.6 lakh crore in FY20, accounting for 34 per cent of revenue receipts. Going further, they may reduce to 32 per cent by FY22.
Major subsidies as a percentage of GDP remained unchanged at 1.4 per cent in FY20 and may reduce just a bit to 1.3 per cent in the next two years.
Nominal GDP for FY20 is expected to grow by 11 per cent and 11.6 and 11.9 per cent in FY21 and FY22 respectively, while GDP growth in the short to medium term is expected to hold steady and stabilise at current levels. In other words, real GDP will grow at 7.3 and 7.5 per cent in FY21 and FY22 respectively.