Fighting Tyranny of Ratios: Story of 2 Budgets

Dr Isaac's openness in stating this and the correctional efforts made make this budget a different and remarkable one.

By :  R Mohan
Update: 2018-02-02 20:18 GMT
Present government commitments had reached to about Rs 40,000 crore by way of pending bills, subsidies, contribution to CSS and others.

We have witnessed the presentation of the Union and Kerala budgets in quick succession. Both speeches were quite lengthy and went into numerous details. Both struggled in a vastly different manner against the tyranny of deficit ratios imposed by the Fiscal Responsibility and Budget Management Acts (FRBMA) of the early 2000s vintage. The Union Budget could not fully arrest the fiscal slippage. It enlarged to 3.5 percent of the GDP as against the expected 3 percent for 2017-18. The Gross Tax Revenues have grown in a muted manner at 16.5 percent during April-November 2017 as against 20 and 21 percent during the same period for 2015 and 2016.  Obviously, the pain first and gain later’ expectation of the demonetisation period fame has not worked.

The fiscal slippage could be held back only by requiring ONGC to borrow from market and buy Union Government’s share in HPCL Ltd. This is an act of window-dressing deftly done by accountants. The disinvestment receipts rose from expected ?72,500 crore to ?100,000 crore in 2017-18 as a result of this. Other than showing a decent deficit figure, the ONGC taking over government’s equity has no other sound logic. The Union Government has not reduced direct tax rates, perhaps due to stymied growth rate even after demonetisation and anti-black money drives. One has to grin and bear it. 

We already have very moderate tax rates compared to OECD and other countries. But the proclivity to impose surcharges and cesses is less than welcome as they truncate the divisible pool of taxes to the States. One surprise is the statement made in Medium Term Fiscal Policy Statement that hitherto Revenue Deficit would not be a relevant concept as borrowing for education and health is as important as building physical capital.  Coming from high priests of fiscal orthodoxy, it can be music to the ears of those branded as fiscal heretics and anarchists by them. One more aspect is the view that off- Budget borrowing is a good route for capital spending, which should generate resources later to pay the debt. Sceptics of KIIFB in Kerala may take note of this, as this partly endorses the Kerala way.

As regards Dr Isaac’s budgets, the one aspect that needs to be congratulated is his effort to make the spending budget realistic by stopping the practice of drawing funds from the Consolidated Fund of the State and parking them in the Public Account. In short it is spending in accounts without actual expenditure being incurred. Hitherto, this notional spending practice cannot be put in practice. Fiscal discipline will naturally follow. Dr Isaac’s openness in stating this and the correctional efforts made make this budget a different and remarkable one. He has also made efforts to raise revenues and introduce much needed austerity in select areas. One has to wish him best and good luck.
    

–Writer is commentator on polity

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