Compared to 2013/14, there is an increase of 0.2 percentage points of GDP in the revenue receipts and almost all of it comes from tax revenues. The gap of 4.8 percentage points is being filled up by fiscal deficit of 4.1 per cent of GDP and 0.7 percentage points of GDP of non-debt capital receipts consisting of loan recoveries and anticipated disinvestment proceeds, listed as 'other capital receipts'. The budgeted disinvestment amount is Rs 63,425 crore against 2013/14 RE figure of Rs 25,841 crore. This is the only additional fiscal space that the finance minister has been able to create.
There are clear possibilities of slippage on the revenue targets. The assumed tax buoyancy for overall tax revenues is 1.32 against a realized tax buoyancy of less than 1 in 2013/14. For corporation tax, the assumed buoyancy is 1.1 against realised buoyancy for the previous year of only 0.85. The assumed buoyancy for customs and excise duty is 1.1 and 1.15 but the realised buoyancy is less than 0.5 and 0.15, respectively. Only for personal income tax the assumed buoyancy compares well. But this is also the area where some tangible concessions have been given.
In other words, chances are next to nil that the revenue targets can be met. Further, the central government has rarely succeeded in meeting disinvestment targets and some slippage is quite likely. With total expenditure remaining stagnant, there is a complete absence of fiscal stimulus for growth. Even the nominal growth assumption of 13.4 per cent appear unrealistic. There may be further reduction in expenditure in a rigid pursuit of the fiscal deficit target. This is a mix of factors that point to a third successive year of low growth. A poor monsoon will add to this misery.
The economy is caught in a vicious cycle of low growth, low tax-GDP ratio, and low expenditure-to- GDP ratio. Unless growth is stimulated, tax buoyancy will not improve. Unless the tax-GDP ratio increases, the fiscal gap will remain above target, limiting the scope for increasing spending relative to GDP and, therefore, dampening growth prospects. Bolder steps are required to break through this vicious cycle.
The economy needs to be stimulated. The ideal way for this is to increase capital expenditure, which creates both capacity and demand and leaves assets for the future generations even if it were to be financed through additional borrowings. There needs to be a more aggressive pruning of subsidies and revenue expenditure.
Outside of the budget, the finance minister is looking for support for expenditure augmentation through central public sector enterprises, more FDI and more investment through the PPP route. These initiatives are welcome but will take time. One hopes that the government will feel the urgency to accelerate growth to come out with a fuller basket of policy initiatives in the 2015/16 budget to boost growth and emerge out of the shadows of the past economic policies.
(The writer is Chief Policy Advisor, EY India. Views are personal)
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