Decoding budget 2020

Woman farmer sifting grain (Image: Ray Witlin/World Bank CC BY-NC-ND 2.0)
Woman farmer sifting grain (Image: Ray Witlin/World Bank CC BY-NC-ND 2.0)

“Every single number in the budget, be it receipts or expenditure is a lie. The budget numbers can no longer be trusted, as the difference between actual expenditure and budget estimates are off by around 25 percent. The year ends at the end of March, and the estimates are based on data only till the end of December, so the estimate of receipts and expenditure in the next three months is a lie,” says Jayati Ghosh, Professor of Economics at Jawaharlal Nehru University at a panel discussion organised by the Centre for Budget and Governance Accountability (CBGA) in New Delhi recently.

Ghosh found that as per the data on central government receipts and expenditure from the Controller General of Accounts (CGA) up to end of December 2019 - 56 percent of the budget remains to be spent in the last three months of the fiscal year. Further, 60 percent of the tax revenues are expected to accrue during this period. Both of these are highly unlikely.  

Speaking about the budget specifics, she said “India is in the midst of an economic crisis marked by a slowdown of economic activity, fall in employment generation, clampdown of consumer demand and an uncertainty of private investment. Both the banking and non-banking sector are in a bad shape. In a depressed macroeconomic situation like this, the budget presented an opportunity for the government to pull the economy out of the crisis by providing a significant fiscal stimulus. The government could have increased public spending in high multiplier areas like the rural employment guarantee programme, agriculture, health, and education, besides infrastructure. In the absence of public investment plans, there will be no revival of consumer demand or real investment.”

“Centre’s tax collection has seen the slowest pace of growth since the time of the global financial crisis of 2008-09. The gap between budget estimates and revised estimates is to the tune of Rs. 3 lakh crores. This is driven mainly by the overestimation of direct tax revenue. There was a deficit in both direct and indirect taxes. The largest shortfall here came from corporate tax, whose rates had been cut from 30 percent to 22 percent last year,” says Simonti Chakraborty, CBGA.

Chakraborty was presenting the gist of CBGA’s report - ‘Decoding the Priorities: An Analysis of Union Budget 2020-21’ at the panel discussion. The report focused on public expenditure, resource mobilisation, centre-state resource sharing and important trends and priorities in resource provisioning for the marginalised sections, economic sectors such agriculture as well as social sectors such as education, health, nutrition, and water and sanitation.

“Considering the poor tax receipts, the dependence of the government on disinvestment proceeds for raising revenue is high. The government expects to raise Rs. 2.1 lakh crore for 2020-21 through disinvestments. Further, though the share of resources to be devolved to states has not declined in the overall revenue receipts, there has been a growing centralisation of tax revenue,” says Chakraborty.

The state governments are getting smaller shares of their tax revenues and the transfer to state governments too saw huge delays. The point was echoed by Ghosh who said “state governments are being denied their rightful compensation for the goods and services tax (GST) which is curtailing their ability to increase spending, creating financial and debt problems for them.”

“Income tax cuts for the middle class have been brought in to improve the consumption demand, but the overall number of tax payers is miniscule and hence, will do little to improve demand or real investment. Corporate tax cut from last year has created a lot of fiscal stress and led to a decline in expenditure,” says Prof T Haque, former director of Centre for Social Development.

Budget, a damp squib for social sectors

“The vexed issue of the invisibility of women’s economic activities as well as their care work and unpaid work are yet to be recognised and this is reflected in the fact that only 20 departments reported the gender budget, while there are gender budget cells in 57 departments. Gender budget has been reduced to a reporting tool, while it was meant to serve as a tool to ensure that the aggregate national or departmental budget is gender sensitive,” says Aasha Kapur Mehta, Professor at the Institute for Human Development, New Delhi. Analysing the budget from a gender and poverty sensitive perspective, she stressed on the need to address poverty, malnutrition, mortality and ill health.  

Is the budget adequate for employment intensive sectors?

The need for adequate budgetary allocations to ensure effective and full implementation of existing legislations such as MGNREGA as well as access to decent work at living wages to support the vulnerable was stressed by all panelists. “The Centre has been unable to pay its dues to the states for Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)—the rural employment guarantee programme, which, by law is a demand-led programme with no budgetary restrictions,” says Ghosh.

“An allocation of ?2.83 lakh crore for the agriculture and allied sector, irrigation and rural development is large and marks a major jump over last year. While the government is aspiring to double farm income by 2022, how this will be accomplished remains to be seen. The outlay for PM KISAN, the direct cash assistance scheme for farmers as well as for MGNREGA outlay is overall inadequate,” says Haque.

Haque welcomed the liberalisation of farm and livestock markets, the plan to implement the Model Agricultural Land Leasing Act, 2016; and the creating of greater capacity along with mapping and geotagging of agri-warehousing, cold storage, reefer van facilities.

Employment-intensive areas such as food, agriculture, rural development, housing, health, and education showed big cuts in actual spending in last year’s budget. “The huge deviation in budget spending goes without any parliamentary oversight. This does not indicate well for the recessionary tendencies in the country’s economy whose slowdown at present is worse than that of 1991 and 2008,” says Ghosh.

“The medium, small and microenterprise sector is in a bad shape, both technologically and financially. Like the construction sector, it too is in a dire need of a fiscal stimulus. “Together, these two sectors could be a major source of demand creation and income generation, but the government did not address this issue in the budget,” says Haque.

Reduction in food and fertiliser subsidy

The Economic Survey 2019-2020 had called for rationalisation of government intervention in the food grain market. There has been a cut in food subsidy to the tune of Rs. 69,000 crore despite a situation of deteriorating food security. The subsidy is provided to Food Corporation of India and state governments for procurement of wheat and paddy at minimum support price and its distribution under the public distribution system. The government suggested that the Food Corporation of India borrow from the National Small Savings Fund to make up for the deficit.

“The government as the largest procurer and hoarder of rice and wheat is unwilling to release food stocks in the hands of the people, despite a deteriorating food security situation in rural India,” says Ghosh.

The budget also saw a cut in fertilizer subsidy. This is expected to have a direct impact on farmers by reducing fertilizer availability and increasing the cost of cultivation. “The fertiliser subsidy was anyway not benefiting farmers, but fertiliser manufacturers,” says Haque. The cut-down is likely to impact the liquidity situation of the fertiliser manufacturers.

The wearisomely presented budget speech “was a complete disaster, as it pretended to address some issues on the supply side through some concessions here and there mainly to ease things for the corporate sector. It fell short in vision, economic strategy and failed to address the demand side,” sums Praveen Jha, Professor of Economics at Jawaharlal Nehru University.

Post By: Amita Bhaduri