Finance Minister Nirmala Sitharaman says she has taken a calculated risk by opting to slash corporate taxes in a year when GST collections have been slow and the overall tax shortfall is likely to be over Rs 2 lakh crore according to some estimates. The gaping hole in the Budget would be extremely difficult to fill. The pressure to sell the government’s old silver—both the stocks of state-run firms as well as whole public sector firms—would be tremendous. Merely trying to sell off sick companies like Air India would not be enough. Profit-making firms may have to be put on the block to cover for at least part of the resource shortfall.
There would definitely be attempts to sell the 5G spectrum but it is doubtful as to how successful they would be unless the opening bid prices are made “reasonable”. But if the Centre lowers the price, it could be taken to the cleaners by the opposition for ‘under-selling’ a vital resource, given the fact that 2G spectrum sale had turned into a major political controversy. If sufficient extra resources cannot be mobilised, as many feel will be the case, the government would have little recourse left but to do one of two things—borrow far more than it has said it will or do something it has not done for quite some time—print extra money.
Relaxing the fiscal deficit would certainly push up public debt, which already stands at roughly $1.27 trillion though the debt is largely domestic and as such repayable in rupees. The fiscal deficit target for the current year stands at 3.3% and some analysts say this is likely to cross 4% if the government chooses the debt route to fund the revenue gap. The other option which many experts consider risky is one which many right-wing economists are now prescribing to developed economies facing deflation. Called ‘helicopter money’, it is the printing of extra money to fund state spending. However, the danger of such a step is that it could push up India’s till-now benign inflation rate, and create a new set of problems while trying to solve an existing one.