Including off-Budget borrowing numbers in the Centre’s balance sheet, as Finance Minister Nirmala Sitharaman has said she will, will be a good start to cleaning up India’s financial and, specifically, Union Budget numbers. The move should be welcomed wholeheartedly. There is more to do. Much of the criticism against the 2019-20 budget was two-fold: One, that some of the government’s own borrowings were shifted on to State-run enterprises; two, tax revenues projected were unrealistically high. Both these issues may have to be addressed in the Budget to be presented on February 1.
The Comptroller and Auditor General (CAG) had raised red flags against the practice of taking recourse to off-Budget borrowings to present a rosy fiscal picture. While even the UPA government was guilty of this, the tight fiscal condition has not allowed the Modi government either to correct course. For instance, the fully serviced bonds purchased by public sector companies was a whopping Rs 88,454 crore till March 2019. Interest on these bonds is fully paid by the government. This would translate to 0.5% of GDP and may go up to 0.9% by 2022 if the practice was not given up. Similarly, funds mobilized by Food Corporation of India (FCI) towards food procurement was liability solely of the government. Resources mobilized by NABARD to fund irrigation projects were yet another, pointed out by the CAG. Carry-over subsidies on food, fertilizers and oil to the next financial year has been a practice followed by successive finance ministers since 1984. Sitharaman’s reported assurances that off-budget borrowings would be listed out in the Budget documents will therefore be the first step towards ending obfuscation and bringing about transparency.
The fall in direct taxes collection by 6.1% at Rs 7.26 lakh crore in three quarters, as against Rs 7.76 lakh crore in same period of 2018-19, could only add to the pressure that Sitharaman faces as she attempts to bring about a semblance of balance to macro-numbers. The fall may be partly attributed to huge cuts in corporate tax rates, but it has been mostly due to the overall economic slowdown. The pick-up in GST collections has not been consistent and in sync with targets, making the finance minister’s task all the more difficult. At the same time, there is a debate over whether, as some economists have suggested, the way to pump prime the depressed economy is to loosen the fiscal belt. It may not be desirable to do that at the same time as attempting to bring off-Budget borrowings into the picture amidst a tight resources position. Fiscal prudence should continue to guide the finance minister in her Budget for 2020-21.