Even as the Finance Minister Nirmala Sitharaman prepares for the next budget, it is time to take stock of the fiscal scenario. During 2019-20, the revised estimate (RE) of fiscal deficit (FD) was 3.8 percent of GDP against the budget estimate (BE) of 3.3 percent. In her speech on the Union Budget for 2020-21, she had justified this in terms of the recommendation of the NK Singh Committee on review of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which permits breach of the target in case of “far-reaching structural reforms with unanticipated fiscal implications.” For 2020-21, she had set FD at 3.5 percent as against 3.0 percent as stipulated under the FRBM Act. Here also, she had justified...
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Category: Fiscal deficit/subsidies
Cut in fuel taxes – not an unmixed blessing
On November 3, 2021, the Union Government notified reduction in central excise duty (CED) by Rs 5 per liter on petrol and Rs 10 per liter on diesel. Seen in isolation, these cuts may appear to be significant. However, when viewed in the backdrop of the unprecedented increase affected by Modi – Government ever since it assumed office, this is small. In May 2014, the CED on petrol was Rs 9.8 per liter whereas on diesel it was Rs 3.8 per liter. As on November 2, 2021, it was Rs 33 per liter on petrol – a cumulative increase of Rs 23.2 per liter. On diesel, it was Rs 32 per liter – higher by Rs 28.2 per liter. The...
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Fuels under GST – unthinkable
In a recent discussion on transition of energy products into the Goods and Services Tax (GST) with economists and industry experts, NITI Aayog has proposed a formula for bringing two motor fuels viz. petrol and diesel besides electricity under the new regime. Under it, the Centre could keep the two fuels in the highest slab of 28% and electricity in the 18% slab. To compensate states for the loss of revenue resulting from the shift to the GST dispensation – fully in case of electricity and partially for petrol and diesel – the think-tank has proposed levying a cess @50%. To understand the formula, and its implications, at the outset, it is important to place a few basic facts. First,...
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Tackling the fiscal slippages: Any takers?
The way the Govt executes its revenue plans with scant regard for accountability, it is unlikely that it will correct the imbalance between revenue receipts and expenditure For several years, the Narendra Modi government has faced a high fiscal deficit. The unusually high FD of 9.5 per cent of Gross Domestic Product during 2020-21 as per the revised estimate is attributed to the devastating effect of the Coronavirus pandemic on economic activity. However, even when there was no aberration, like in 2017-18, 2018-19, and 2019-20, the fiscal deficit was in the 5.5 to six per cent range- significantly higher than the targets set for those years. This is because, in respect of both expenditure and revenue, the government of the day...
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Tackling fiscal slippages – any takers
For several years, Modi – Government has faced high fiscal deficit (FD) – excess of its total expenditure over total revenue. While, an unusually high FD of 9.5% of gross domestic product (GDP) during 2020-21 as per revised estimate (RE) is attributed to the devastating effect of Corona pandemic on economic activity, even during the earlier years viz. 2017-18/2018-19/2019-20 which were free from such an aberration, the FD was in the 5.5% – 6% range (these numbers capture the effect of off-budget liabilities unlike the official figures which don’t) – significantly higher than the targets set for the years. This in turn, is because in respect of both the expenditure and the revenue, the government of the day never lived...
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What’s ailing PSUs’ sale?
The PM will do well to ‘debureaucratise’ the process of running CPSUs. This should be done even before privatisation is taken up The process of disinvestment needs to be unshackled. Against the `210,000 crore target set for disinvestment proceeds from Central Public Sector Undertakings (CPSUs) in FY21, the actual realisation was just about `32,000 crore. Even as the Centre may explain it away as ‘corona pandemic effect’, the prospects in FY22, when the economy is expected to register high growth, don’t seem much better. For this year, the target for speaks for itself. Finance minister Nirmala Sitharaman has fixed the target for FY22 at `175,000 crore, substantially lower than year before. This is despite adding two public sector banks (PSBs)...
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Bank frauds – no fetters on CBI please
Even as the Government is making all out efforts to ensure that the GDP (gross domestic product) – after contracting by 8% during 2020-21 – returns to a high growth trajectory, it is concerned at the tepid recovery in credit availability which is considered to be the sine qua non of growth. According to the latest data of the Reserve Bank of India (RBI) annualized non-food bank credit growth in January this year was slower at 5.7% compared to 8.5% in the same period last year. Credit to industry, however, contracted by 1.3% in January 2021 as compared to 2.5% growth in January 2020. A major (perceived) bottleneck is the reluctance of bank officials to sanction loans who fear they...
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Privatization – An uphill task
Under a big bang approach to privatization announced in the Union Budget for 2021-22, the Finance Minister, Nirmala Sitharaman has divided the Central Public Sector Undertakings (CPSUs) in two broad categories viz. “strategic” and “non-strategic”. Whereas, the former is broken up into 4 sub-groups viz. atomic energy, space and defense; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services, the latter includes all other sectors such as hotel and tourist services, industrial and consumer goods, trading and marketing and so on. As per the plan, all PSUs in non-strategic sector will be privatized. All loss making enterprises in this category will be closed. In the strategic sector too, the Government will be open to privatization...
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Fiscal deficit target goes for a toss
An offshoot of the economic crisis triggered by the pandemic is manifest in the Centre coming out with the ‘real’ state of its finances. In the Budget presented on February 1 by Finance Minister Nirmala Sitharaman, the revised estimate (RE) for fiscal deficit in 2020-21 is put at 9.5% of GDP. This is almost three times the budget estimate (BE) of 3.5%, which itself was 0.5% higher than the 3% threshold required by the Fiscal Responsibility and Budget Management (FRBM). It was justified by her as due to “far-reaching structural reforms with unanticipated fiscal implications.” The slippage is not just due to a shortfall in tax collection and non-tax revenue, especially proceeds from disinvestment, but also due to inclusion in...
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Reinvigorating growth: Where is the money?
The FM wants to boost growth, but it will be at the cost of fiscal de-stabilisation. One is not sure whether a sustained, rapid surge will come as a huge resource gap remains Taking a cue from the prescription that the Chief Economic Advisor (CEA), Krishnamurthy Subramanian gave in the Economic Survey: 2020-21 that “the Government should come up with more fiscal measures for short-term support to the economy and businesses”, Finance Minister (FM) Nirmala Sitharaman has gone ahead with some “big bang” measures. She has not just attempted to give a boost to industries and businesses in the short-term but has also given an indication of her intent to put them on a high growth trajectory in the medium to...
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