The Hindu Editorial : Goodbye To Fiscal Consolidation

Title: Goodbye To Fiscal Consolidation

With the rural constituency in focus, the government’s spending road map may cross expected limits

The fiscal deficit target for 2017-18 had been set at 3.2% of GDP for 2017-18 and 3.0% for 2018-19.

The fiscal deficit for 2017-18 has ended up at 3.5%. For 2018-19, the government has set a target of 3.3%. The fiscal deficit target of 3% of GDP has now been pushed to 2020-21.

Missed targets

- Revenue receipts in 2017-18 have grown faster than anticipated (although Tax revenues were higher than anticipated (15% compared to 13%).

- Capital receipts are expected to exceed the budgetary estimate thanks to record disinvestment revenues of ₹100,000 crore (₹27,500 crore higher than targeted).

- Revenue expenditure grew by 15% compared to the Budget estimate of 6%.

- Capital expenditure ended up lower than in the previous year by 3.9%.

- Expenditure has got out of control or was under-estimated in last year’s Budget. Moreover, revenue, not capital, expenditure is the villain. The revenue deficit for 2017-18 is 2.6% of GDP, way above the Budget estimate of 1.9% of GDP.

What do we make of the projections for 2018-19?

- The Budget projects an increase in tax revenues of 16.6% compared to 15.3% in the previous year, which appears achievable. Capital expenditure has been set 9.9% higher which is modest given that there had been a decline in the previous year.

- There are no big tax giveaways either in the Budget.

- In 2017-18, the Economic Survey argues, growth was dampened by a combination of factors: high real interest rates, disruption caused by demonetisation and the goods and services tax (GST), the twin balance sheet problem and high oil prices.

- With oil prices projected to be $10-$12 higher in the coming year, growth could be adversely impacted by 0.3%.

- On the positive side, the ratio of gross tax revenues to GDP, which had been stagnating at around 10% since 2008, has risen to 11.6% in 2017-18 and is projected to rise further to 12.1% in 2018-19, 12.4% in 2019-20 and 12.7% in 2020-21.

- This shows that demonetisation and GST are beginning to pay off by widening the tax base.

- Tax concessions to the salaried classes and measures such as loan waivers. These are absent in Finance Minister Arun Jaitley’s Budget. The Budget brings back the standard deduction for tax payers, of ₹40,000. But this is in lieu of transport and medical expenses and is also offset partially by an increase in cess from 3% to 4%. There is little else to cheer for the middle class.

- Budget has tried to reach out to the rural constituency and to the poor through a number of measures. The most notable, perhaps, is the promise of a minimum support price (MSP) for all crops of 50% above the cost of production.

- The Budget proposes a health insurance scheme that will cover 10 crore poor families with an insurance cover of ₹5 lakh each. Since such a cover would mean an annual premium of at least ₹10,000, it is doubtful that it is backed by actual outlays in the Budget. Moreover, basic health care must be provided through government hospitals and not through insurance that pays for care at private hospitals.

- The Budget also includes several measures for micro, small and medium enterprises (MSMEs). There is a target of ₹3 lakh crore for lending under the MUDRA scheme. The government will pay 12% towards the Employee Provident Fund for new employees in all sectors for the next three years. A lower corporate tax of 25%, hitherto applicable to enterprises with a turnover of ₹50 crore, is now applicable to companies with a turnover of up to ₹250 crore.

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