Debt, not revenues, will fund government Budget

Subhash Chandra Garg,

The government has revised downwards all revenue estimates for not only the current year FY2020-21 but also FY2021-22. Tax revenues are projected to be only Rs. 13.44 lakh crores in the revised estimates of FY 2020-21 and Rs 15.45 lakh crores in the budget estimates of FY 2021-22 against the Budget Estimates of Rs 16.34 lakh crores.

Government’s revised estimates for FY2020-21 are lower than the actual tax revenues of Rs 13.57 lakh crores collected in FY2019-20, whereas the estimated tax revenues of FY 2021-22 are 5.5% lower than the budgeted revenues of FY2020-21. These estimates indicate that the government is underestimating its tax revenues for the FY2020-21 and has little confidence in the economy bouncing back to normalcy even next year.

It has collected net tax receipts of Rs. 9.62 lakh crore by the end of December 2020, which was an increase of Rs .57 lakh crore (6.35%) over the tax revenues received last year during the same period. In nine months, the government has been able to make up for all the shortfall in tax revenues seen in the first half of FY2020-21. The tax performance in the third quarter of FY2020-21 has been quite spectacular, with the government receiving net tax revenues of Rs. 5.03 lakh crore against Rs. 2.97 lakh crore in the same period last fiscal, which was 70% higher. Why is the government not confidant of continuing this momentum?

The government had received Rs. 4.51 lakh crore net tax revenues in the last quarter of FY2019-20. Even if there is a growth of only 25% over this during Q4 of FY2020-21, this will bring net tax revenues of Rs. 5.64 lakh crore in the fourth quarter taking government’s net tax revenues for FY2020-21 to Rs. 15.26 lakh crore. This will be Rs. 1.82 lakh crore higher than the revised estimates of Rs. 13.44 lakh crores. The government is definitely undershooting the tax revenue collection for FY2020-21. Is it deliberate to show better performance later than poorer performance which has been the case in the last three years or there has been some over-reporting of tax collection in the third quarter of FY 2020-21? Only time will tell.

The government is projecting a shortfall of 17.7% (Rs. 2.90 lakh crores) in the tax revenue of FY 2020-21 over budget estimates and an increase of 15% over the depressed revised tax revenues of FY 2020-21 for the year 2021-22. I hope this reflects only excessive conservatism of the government and not the real assessment of the government about the performance of the economy. If it is about the performance of the economy, India is in for another year of growth washout. Similar conservatism is reflected in non-tax and disinvestment receipts. As against non-tax receipts estimated for budget 2020-21 of Rs. 3.85 lakh crore and the disinvestment receipts of Rs. 2.10 lakh crore, the government has revised the estimates for non-tax receipts to Rs. 2.11 lakh crores and for disinvestment to Rs. 32,000 crores. Together, these two non-tax sources of receipts are expected to contribute only Rs. 2.43 lakh crores against the budget estimates Rs. 5.95 lakh crore in FY21.

The downward revision of disinvestment targets by a whopping 70% is a sad commentary on the execution ability of the Government in successfully carrying out privatisation. The lacklustre performance of non-tax revenues reflects the inability of the government to take all the surplus of RBI as dividend and weakening of profitability of PSUs.

The inability of the Government to maintain revenue receipts, leave alone ramp up, has made the government to take shelter in debt. The fiscal deficit for the FY 2020-21 is projected to rise from budgeted Rs. 7.96 lakh crores to (hold your breath) Rs. 18.49 lakh crores in the revised estimates- 9.5% of India’s GDP of FY2020-21. For the FY 2021-22 also, the fiscal deficit is projected to Rs. 15.07 lakh crores, which is 6.8% of the projected GDP of FY 2021-22. The debt will fund 54% of the government’s total expenditure of Rs. 34.50 lakh crores (revised) for FY 2020-21 and 43% of the total expenditure of Rs. 34.83 lakh crores for FY 2021-22. Debt is convenient and less painful in the immediate. Covid-19 has provided an adequate excuse to the Government to take shelter in debt. While the stock market celebrates complete shunning of any tax measure in the Budget 2020-21, India will pay back dearly for many years to come.

(The writer is former finance secretary, Government of India)