View: Limited revenues will not hold back Budget 2020 from featuring new schemes that induce overspending

Each year, as India approaches the Union Budget, one sees all manner of fiscal experts coming out of the woodwork.

Everyone has an opinion of what the Budget must do and what concessions and stimulus can kick-start India. Most of them forcefully argue why their suggestions are the only sensible solutions that can pull India out of the economic morass.

Unbothered with basic fiscal arithmetic, they invariably assume that the central government has some hidden kitties to fund their proposals; and, if not, that it can always garner the additional funds at little or no extra cost. Few realise that the cupboard is well and truly bare.

Let’s start with the basics. Without recourse to borrowing, the money for spending in the Budget comes from three heads: net tax revenue to the Centre, non-tax revenue — these comprise revenue receipts to the Centre — and money from disinvestment of central public sector enterprises, which comes under ‘other’ capital receipts.

Spent Force

Revenue expenditure is largely made up of interest payment on past borrowing, wages, salaries and pensions of central government employees including the police, paramilitary and the army, and subsidies, especially on food, fertilisers and petroleum products. Nothing in revenue expenditure goes into producing an iota of capital to generate future income.

In 2017-18, revenue expenditure exceeded revenue receipts plus disinvestment by Rs 3,43,555 crore, or an excess of 22%. According to the Revised Estimate for 2018-19, this excess was Rs 3,30,930 crore, or 18%. And, while the Budget Estimate for 2019-20 projects an excess of Rs 3,80,019 crore that is also 18%, the actual numbers will be much worse because of lower revenue receipts and a huge shortfall in disinvestment targets. In simple terms, the government earns far less than it spends even on the revenue account — of which not a rupee goes into financing investments or creating capital.

Why is this so? Because despite catchy slogans like ‘Minimum Government, Maximum Governance’, we have built a hugely bloated bureaucracy at all levels that has no bearing with the digital age. As an example, for 2019-20, revenue expenditure less interest payments and transfer to the states — essentially wages, salaries, pensions and establishment expenditure — of the ministry of finance under Nirmala Sitharaman was pegged at Rs 2,70,119 crore. At Rs 829 crore, the cost of maintaining our Cabinet Secretariat in 2019-20 will be only 4% less than that of running Dadra and Nagar Haveli.

Moreover, we have done little to rein in subsidies. For 2019-20, subsidies on account of fertilisers, food and petroleum products were estimated at Rs 3,01,694 crore, which was more than 13% higher than the Revised Estimate of the previous year.

To understand the magnitude of such profligacy, consider a simple fact. According to the Budget Estimates of 2019-20, almost 74% of the central government’s total spend of Rs 33,23,989 crore will be going to fund revenue expenditure.

The consequence of this uncontrolled spending is that every rupee earmarked for capital outlays plus a fifth of revenue expenditure come from additional borrowing and from resources of central public sector enterprises that goes under the name of Internal and Extra-Budgetary Resources (IEBR).

Keynesians Lost the Key

In the backdrop of steadily falling GDP growth, it is hardly surprising that all manner of amateur Keynesians have popped out of the woodwork —each suggesting expenditure increases to allegedly raise consumer demand and lift the economy out of the morass. Even if one ignored the fact that the empty cupboard can no longer afford such indulgence, little thought is given on how these magical dollops of money will actually transmit through the economy.

Here is an example. Suppose Ms Sitharaman were to announce yet another grandly titled central programme that will give Rs 12,000 per year to families below the poverty line. How does this money move? First, demand for grants are made by the ministry that is supposed to administer this programme. Second, these have to released by the expenditure department of the ministry of finance.

Third, the money so released will have to move to coffers of 28 states and eight Union territories. Fourth, from the state and Union territory capitals, it will have to move to districts. Fifth, from the districts, it will need to flow to the tehsils or administrative blocks.

Sixth, the tehsildar or the block development officer will have to identify those who are below the poverty line.

After which, the seventh, these poor souls will get financial succour. How much of this does one realistically expect to be completed in a single year? Is it surprising that most grand central schemes fail?

Today, the situation is bad enough to warrant serious, and hard, fiscal reforms. Starting with slashing subsidies.

Unfortunately, I expect none of that to happen. Instead, we will get new programmes and schemes that shall apparently give relief to the needy; that shall raise much-needed investments; that shall lift GDP growth; all at the cost of a little slippage in fiscal deficit.

A bare cupboard is akin to an empty vessel. We know what empty vessels do. So, without an iota of cynicism, on February 1 this year, I predict a lot of sound, essentially signifying nothing. Just as I predict many giving Budget 2020 no less than 9 out of 10. Plus ça change.…

The writer is chairman, Corporate and Economic Research Group (CERG)