Budget 2019: Unrealistic projections put promises in doubt

The first budget of the Modi 2.0 government was placed in the backdrop of an economic distress, the most glaring reflection which is the sharp rise in the open unemployment rate, which stood at a four-decade high of 6.1% in 2017-18 as compared to 2.7% in 2011-12.

With the growth rate of rural wages and agricultural prices witnessing a sharp decline since 2013-14, the prevailing unemployment crisis has been further accompanied by severe rural distress. Any attempt to address such distress would have required the government to push up the share of development and social sector expenditures in GDP.

On the contrary, the budget allocations for 2019-20 remained significantly below the actual expenditure shares of the UPA-II era. The marginal recovery of these expenditures projected in 2019-20 compared to the Modi 1.0 years is based on the projected rise in revenue receipts which is expected to increase by 0.7% in 2019-20 over 2017-18.

But the veracity of such a projection remains in doubt. The share of projected revenue receipts in GDP for 2019-20 at 9.3% is similar to that of the revised estimate of revenue receipts for 2018-19 (9.2%). But as the latest available data show, the revised estimates of 2018-19 were grossly overestimated.

Tucked away in the statistical appendix of Volume 2 of the Economic Survey presented in the parliament a day before the union budget was placed in a table (Nos. 2.5, page A 59), which provides actual estimates of revenues and expenditure of the government in 2018-19. The actual revenue receipts of the government in 2018-19 fell short by ₹1.67 trillion (0.9% of GDP) from the revised estimates and total expenditure by ₹1.46 trillion (0.8% of GDP).

The cut in revenue expenditure by ₹1.3 trillion and capital expenditure by ₹13,664 crore in 2018-19 has been concealed by the Finance Minister while presenting the Budget for 2019-20. One does not know on which heads the axe has fallen. This huge discrepancy between the revised and the actual estimates puts into question the very basis on which the projections for 2019-20 is made and with it, even the promise of a meager recovery of expenditure ratios.

It is surprising that despite the actual estimates now being available with the government through the Controller General of Accounts, the new Finance Minister has chosen to reiterate the same erroneous revised estimates for 2018-19 in the budget documents presented in parliament on July 5. By persisting with such concealment of actual numbers, the new Finance Minister has begun her innings on a non-transparent note.

One conceivable reason for this is that the Finance Minister wants to conceal the fact that the centre’s net tax revenue growth has fallen sharply from 12.8% in 2017-18 to around 6% in 2018-19, a clear sign of an economic slowdown. In fact, the slowdown, in reality, appears to be much sharper than the 0.4% fall in annual GDP growth suggested by the official GDP estimates – which have been widely criticized for artificially inflating the economic growth rate.

The fiscal deficit figure of 3.4% of GDP for 2018-19 is also not credible, because ₹97,000 crore worth of NSSF loans to the FCI has been categorized as capital expenditure under revised estimates for 2018-19, which is basically an accounting trick to conceal government borrowing.

The Economic Survey has already indicated a slowdown in investment and a widening of the trade deficit. The first budget of the Modi 2.0 government hardly contains any decisive step to arrest the economic decline and boost consumption, investment and exports.

Setting up a credit guarantee corporation by the government and partially guaranteeing credit worth ₹1 lakh crore to NBFCs, amounts to little and would also make the government underwrite private sector risks. After all, the source of the credit crisis in the Indian economy lies in the humongous stock of NPAs accumulated by the banking system, thanks to large scale corporate delinquency.

While waxing eloquent about the reduction and recovery of NPAs in the recent period, the Finance Minister once again concealed the fact that NPAs worth over ₹4 trillion have simply been written off by the banks. The public sector banks taken together have made aggregate losses of over ₹66,000 crore in 2018-19, mainly because of these NPA write-offs.

With the weakening PSB financials, credit flow continues to remain subdued. This raises the question, why can’t the government make public investments and push up other development-related expenditures to generate gainful employment, instead?

In the absence of a coherent strategy to tackle the economic distress and slowdown, the targets of becoming a $5 trillion economy and making infrastructure investments worth ₹100 trillion set in the budget speech sound more like slogan shouting. The Indian economy deserves much better.