A regular budget has been ruled out and will be presented after the new government comes in.
This is prudent as it leaves open the door to the legitimate authority to draw up the proposals for the coming year. Yet there are lots of expectations on what the Budget will look like as the concept of populism and freebies are circulating. This gets puzzling because all parties are making several announcements on benefits for various sections at the central and state levels. The logical question is whether or not this is real as there are constraints on what can be announced in the Budget. What is one to make of it?
One may have noticed that post-the State elections results, the government has been on an overdrive to put lots of things in place. The farm loan waivers were the first endeavour with the states announcing some audacious numbers. While they have grabbed headlines and more promises have been made like cash payments to farmers, it has not been overtly stated whether these amounts would feature in the budgets of FY19 or FY20.
As both the ruling and Opposition parties have backed such a move, it is interesting that no provision has been made so far. With an interim budget this time, logically we cannot have such an allocation as it would contravene the pre-elections code. Therefore, while announcements can still be made, there cannot be provisions in the Budget.
The interim budget of the UPA in 2014-15 upfront said that it was not prudent to make any allocation as per the elections rules but also put a qualification that some provisions have to be made because of expediency. This means that the door is still open to push through some sops and this will be an important takeaway. But for sure there will be a manifesto like Budget where the aspirations of the government will be reinforced and may not be different from what has been stated all along.
More importantly, the Budget will carry a bundle of achievements of the government and hence we will get to know how many toilets were created, how many people were given jobs, how many women were powered, and girl children educated and so on. Some of the more mass-oriented programmes like the prime minister’s Ayushman (health for all) scheme will be something pushed forward by the finance minister.
It is more likely that if any big waiver annulments are made, they could be brought in as being expedient which can be defended as being required to help farmer distress. Alternatively, the state government budgets can make such allocations which can then enter the manifesto of the parties which can clearly tell the voters the good that has been done which will be multiplied at the Centre if they come to power. This would again not violate the Election Code.
Can tax rates be changed? The answer again is no, as Goods and Services Tax (GST) has put a block on most indirect taxes. Customs duty can be changed for some products if warranted and other central excise rates could be tinkered with. But on direct taxes, giving anything may be improper and taking more through cess or enhanced rates would be vote losing. Therefore a neutral stance on taxes may be expected.
As the government machinery has to be kept moving, the budgetary numbers will be scaled up in a commensurate manner so that all expenses such as salary, interest payments, defence, subsidies, are met as they are part of a routine. Any sectoral thrust can be more in language rather than in terms of allocations. While the revenue and fiscal deficit numbers are more likely to be on par with the budgeted or revised numbers for FY19, they would be merely statistics as they would change when the main Budget is announced in June.
There will be interest in how the revised numbers look for the year. Here, it is important to note that by dragging the Budget announcement one month earlier to February, technically taking a call on the revised budgeted numbers makes less sense as while 10 months would have passed, information will be available for 9 months. This sort of adds skepticism to the revised numbers especially on tax collections and expenses. But, this never has been a drawback in the practical sense as government accounts are based on cash, meaning thereby that money spent and earned is what enters the budgeted numbers.
Hence, if a tax refund is not paid or deferred, then the net tax receipts can be kept higher. Similarly, expenditure which is incurred but not paid for would be deferred for the next year making the expenses look more moderate. This normally happens when subsidies are paid on food or fertilizers. Therefore, such rollovers help to make the picture look good always and it is hard to detect that there have been rollovers as it is only the monthly accounts which reveal large payouts in April and May which are actually for the previous year!
Hence, while there will be some interest in getting to know the revised fiscal deficit number and how it has been financed, it would ultimately be just a number that can be arrived at by tweaking the actual cash payments described above. But for sure, such a number can convince that the government has managed to meet the fiscal targets set forth at the beginning of the year. This could be a little more challenging this year as both, growth in gross domestic product (GDP) and inflation have been lower than expected which will tend to keep the GDP at nominal prices at a lower level. This will mean playing a bit more with the fiscal deficit number.
Hence, while there will definitely be a lot of interest on the various announcements made in the Budget, it would be important to track if the commensurate amounts are provided for in the expenditure statements. This is something one should watch out for.
(The writer is chief economist, CARE Ratings)
To keep watching India’s No. 1 English Business News Channel – CNBC-TV18, call your Cable or DTH Operator and ask for the Colors Family Pack (inclusive of 24 channels), available for Rs. 35/- per month, or subscribe to the channel for Rs. 4/- per day.
To keep watching the Leader in Global Market & Business News – CNBC-TV18 Prime HD, call your Cable or DTH Operator and ask for the Colors Family HD Pack (inclusive of 25 channels), available for Rs. 50/- per month, or subscribe to the channel for Rs. 1/- per day.
Updated Date: Jan 16, 2019 16:49:54 IST