Will Pranab's finmin ever tell us the truth about budget?
Is there no way the government can get its budget arithmetic right?
It is not unusual for a government to run up a huge fiscal deficit in the midst of a cyclical slowdown. So, when Pranab Mukherjee's finance ministry announced a Rs 40,000 crore additional bout of public borrowing on Friday for 2011-12, people didn't ask why, but asked instead, if there will be even more. The Rs 40,000 crore follows an earlier Rs 53,000 crore of extra borrowings announced in September.
This writer believes the answer is yes, the government will borrow more, unless it receives an unexpected tax bonanza in the fourth quarter - which seems unlikely.
But even if we forgive the UPA government its fiscal slippages and blame it on the downturn, we need to ask some tough questions of the government. Here are some of them.
Are you still telling us the truth?
Till a few days ago, finance ministry officials were trying to pretend that their 4.6 percent fiscal deficit target was still achievable. The mid-year economic review presented to Parliament earlier this month knew it didn't have a snowball's chance in hell of meeting the target, but used misleading statements to hide the truth.
Speaking of the fiscal deficit - a barometer of the government's imprudence - it said: "Global economic events are not giving conducive signals for a similar outcome in 2011-12." The "similar outcome" was a reference to last year's miraculous reduction in the fiscal deficit for reasons other than fiscal prudence.
Thanks to huge non-tax receipts of Rs 1,06,000 crore from 3G spectrum auctions, 2010-11's fiscal deficit was 4.7 percent. To bring this down by just 0.1 percent to 4.6 percent did not need a major helping hand from "global economic events", but this is what the finance ministry seems to be suggesting. Does Mukherjee need huge amounts of luck to reduce the fiscal deficit by 0.1 percent?
Are the accounts still credible?
After the two additional borrowing programmes announced in September and December, will the government's budget math now work?
Most unlikely. Taking the two additional borrowing programmes, the government will raise Rs 92,872 crore more from the markets over and above the Rs 4,12,000 crore deficit announced in the budget. But the oil companies have not been compensated for their subsidies - which they have calculated at Rs 1,32,000 crore for 2011-12.
This suggests that the government may need to borrow an additional Rs 40,000 crore for oil subsidies alone - unless it is planning to let the oil companies go technically bankrupt this year.
However, even this only pushes unpaid bills to next year. The fiscal deficit figure for this year will thus be a clear fudge.
Has a realistic effort been made to estimate revenues this year?
As Firstpost noted a week ago, corporate tax collections were just 41 percent of budgeted estimates in April-November 2011. They should have been closer to 66 percent. But that's in the past. Given the fall in the stock market, huge foreign exchange losses due to the rupee's fall, and rising input costs, it is only reasonable to expect that corporate tax collections will be dented even in the remaining four months of the year.
A Macquarie research report has estimated Reliance's net profits to fall by over 20 percent in the third quarter. Barring tech, which will benefit from rupee depreciation, the situation could be worse for the bulk of India Inc. Add the fall in the stock market, and most companies and investors will probably have enough losses against which to set off their falling profits.
The implication: there may be no pick-up in revenues even in the next quarter. So where does that leave finances?
Has the government tried to manage taxpayer wealth sensibly?
The finance ministry's job is not just to manage revenues and expenditures, but also national assets - or taxpayer assets. In a year in which the stockmarket lost about 27 percent of its value, the government's listed companies lost 32 percent, according to a calculation by Business Standard. The additional 5 percent loss can be directly attributed to government mismanagement of taxpayer assets, either due to policy flaws or actual mismanagement.
According to the newspaper, on 1 January 2011, the value of government holdings in 71 listed public sector shares was Rs 15.87 lakh crore. Today, it is Rs 10.7 lakh crore."
That's a loss of Rs 5,17,000 crore - almost exactly equal to its much expanded borrowing programme for the year of Rs 5,05,000 crore. If this, Rs 80,000 crore is the loss in excess of the 27 percent fall in the overall market.
Of course, the government can blame the market for its losses, but most of its losses have been suffered by companies who have been done in by policies - like the oil and coal sectors.
In short, a big chunk of the losses in taxpayer wealth is attributable to bad policies. Is it any wonder the disinvestment programme of Rs 40,000 crore has gone for a complete toss this year?
Has the government started budgeting for next year's lemons?
Apart from oil subsidies, the UPA government will have to budget for several ticking time-bombs that will blow up next year.
One, of course, if the Food Security Bill, for which the food supply ministry claims the subsidy bill will be only Rs 27,000 crore more than the current subsidy Bill - making for a total of Rs 95,000 crore. But independent estimates by Ashok Gulati, head of the Commission on Agricultural Costs and Prices, put the annual costs at Rs 2,00,000 crore.
Next, the power sector bomb is about to go off in 2012-13. While power is a state problem, the truth is if SEBs can't pay, they won't get coal. If states can't pay their SEBs the subsidies needed to keep going, the centre will have to pick up the bill. While some of it will come from hikes in power tariffs, the rest will have to come from a Central bailout. How much we don't know, but as at the end of March 2011, the SEBs had accumulated losses of Rs 2,10,000 crore.
The third ticking bomb is banks. Bad loans are mounting in the system, and since the bulk of the banks are in the public sector, it is the government that will have to pony up the additional capital. In 2011-12, the government pencilled in only Rs 6,000 crore for bank recapitalisation when SBI alone wanted Rs 12,000 crore from the government as its share of a right issue.
According to a recent Firstpost calculation, as much as Rs 9,00,000 crore of bank lending is exposed to risky sectors like real estate, power, infrastructure and textiles.
A slowdown year is a bad time to take the government to task for fiscal slippages, but is it too much to ask that the finance ministry at least give us some realistic numbers?
A budget fudge is no different from a corporate misstatement of accounts for which managements can be sent to prison.
Why should our budget managers think they can pull any number out of a hat and get away with it?
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