Electoral budget cycles is a phenomenon observed in most democratic countries. These cycles typically cause the revenues to fall and expenditures to increase due to giveaways of various kinds and widen the deficit.  

The interim Budget presented by the stand-in Finance Minister fully qualifies to be characterised as the Election Budget. It has giveaways on both revenue and expenditure sides and a status quo on fiscal consolidation. In many ways, it goes well beyond what an interim Budget and the proposals are in the nature of additional policy initiatives.

While the Budget speech is full of election rhetoric listing out real and imaginary achievements of the government during the last four years and posting a vision and agenda for the next 10 years, the two important initiatives are the income support for farmers (Pradhan Mantri Samman Nidhi) and tax rebate for taxpayers up to Rs 5 lakh income. The income support to farmers was expected particularly after the widespread debate on the farmers’ distress and electoral reverses in the three States. In some ways, despite the additional expenditure of Rs 20,000 crore in the current fiscal and Rs 75,000 crore budgeted for the next year, the give away has been contained.The speculations on these were wild and the government must be given the credit for limiting the giveaway to Rs 6,000 per year to a farmer having less than 2 hectares of land. Of course, this will leave out cultivators who are not the owners of land and the vast array of farm labourers who are much more vulnerable.  

Similarly, the tax rebate given to taxpayers with income up to Rs 5 lakh is expected to cost the exchequer Rs 20,000 crore. Since it is a rebate rather than an increase in the exemption limit will disappoint many taxpayers who were hoping for indexation of the threshold and get relief.  However, the minister has been careful to limit the damage and to that extent, after the euphoria, the reality check is likely to disappoint many.   

Another area where the market expectations ran high was hope of getting some sops by the small and medium industry. Apart from the scheme of sanctioning loans up to Rs 1 crore within 59 minutes which was announced by the PM earlier, 2% interest rate rebate in incremental loans, increase in the priority sourcing of SMEs to 25% by public enterprises with 3% reserved from women entrepreneurs, there is not much to appease the sector which has borne the brunt of demonetisation misadventure and sub-optimal GST implementation.On the macroeconomic front, the government, there is a complete status quo in fiscal consolidation. The government hopes to contain the fiscal deficit in 2018-19 at 3.4% of GDP and has projected an identical number for 2019-20.  Interestingly the lower than budgeted collections of GST in 2018-19 by almost Rs 1 lakh crore is supposed to be covered by higher collections from Corporation Tax (Rs 50,000 crore) and Customs duty (Rs 17,500 crore), leaving a shortfall in tax revenues of just about Rs 23,000 crore. On the non-tax side, there has been a significant increase in the dividend from RBI from the budgeted amount of Rs 54,817 crore to Rs 74,140 crore in the current fiscal and this is supposed to increase further to Rs 82,912 crore next year.  

How realistic are the projections for 2019-20? An important thing about the budget forecasts is that after the din and buzzle. People tend to forget and, in any case, as this is called the interim Budget, we will have to wait until the final Budget is presented after the elections.  

Nevertheless, it appears that the tax projections are on an optimistic side as individual income tax in 2019-20 is assumed to increase by 17.2% over the revised estimate of the previous year and increase in GST is estimated at 22%!  On the expenditure side, the total expenditure increase is projected at 13.3% with revenue expenditure increasing at 14.4% and capital expenditure budgeted to increase by just 6.2%.

This, the fiscal deficit is proposed to be capped at 3.4% of GDP in 2019-20 with the assumption of very high buoyancy of GSDT and personal income taxes and by compressing capital expenditures.  Of course, there is a larger question of credibility of the numbers itself if we consider the report of the CAG on the FRBM Compliance review.  

There are many ways through which off-budget financing is resorted to show that fiscal consolidation is done. While this is a time honoured convention, it is time that the government which keeps reform agenda as a priority should try to make the system more transparent and at least begin initiating measures to move over to embrace accrual accounting.

(The writer is a member of the Fourteenth Finance Commission).