A hand to mouth Budget

Context : The article highlights that Fiscal position of the government is not in the right shape.

Tax revenue

• CAG report highlighted that The Central government’s tax revenues for the financial year ending March-end 2019  fell short of the Interim Budget’s estimates  in February by  0.9% of GDP.
• figures show that direct tax collections for 2018-19 fell short by ₹74,774 crore while those of indirect tax collections were by ₹93,198 crore.
• The new Budget estimate for gross tax revenue is ₹90,936 crore lower than what was projected in the Interim Budget.
• The new Budget estimates show that the government does not expect to improve its performance on tax collections in the current year:

(a) Gross tax revenue-GDP ratio is budgeted to slip from 11.9% in 2018-19 to 11.7% in 2019-20.

(b) The direct tax-to-GDP ratio is expected to go from 6.4 to 6.3 in 2019-20.  

(c) The indirect tax-to-GDP ratio will reduce from 5.5 to 5.3 in 2019-20.

What is government doing to improve its revenue situation?

• As a percentage of GDP, non-tax revenue is budgeted to grow from 1.3% in 2018-19 to 1.5% in 2019-20.

• The expenditure estimates show that the money the government is raising from assets, through disinvestment and extracting from the PSEs through dividends, is not going towards significantly expanding public investments. This is because much of it is getting spent on revenue expenditure, providing for salaries, pensions, subsidies and interest payments on past borrowings.
• The revenue expenditure is budgeted to grow to ₹24,47,780 crore in 2019-20, an increase of 14.3% over the revised estimate for the previous year.
• Revenue expenditure represents the cost of running Government. Further this expenditure is not used for creation of assets or infrastructure. Thus governments normally seek to reduce this component of expenditure to improve the Fiscal deficit.
• However as is visible from the above data government is channeling its important resources on revenue expenditure.
• The government’s interest payments for past borrowings, the largest component of the revenue expenditure, are budgeted to grow in nominal terms, from 11.1% in 2018-19 to 12.4% in 2019-20, or faster than even the estimated GDP growth.

capital expenditure is projected to grow at a rate slower than the projected rate of GDP growth. This is significant since the government has termed this budget as a 'pro-investment' budget.