Notwithstanding the braggadocio over the $5 trillion economy that the government is pursuing, economists from the non-BJP camp have been insisting in unambiguous terms, that things are far from happy vis-à-vis finances of the Government of India. However, when the government-appointed member of the Economic Advisory Council (EAC) to the Prime Minister, Rathin Roy, publicly talks of the “silent fiscal crisis” facing India, even the government must take note. One way is to relieve the EAC member of his responsibilities, as the government has with several outstanding individuals who exposed some of the finance ministry’s math to be incorrect. The other is to acknowledge the problem ~ the revenue deficit ~ which is somewhat intractable in nature and demands innovative solutions.
The Controller General of Accounts’ (CGA) numbers suggest a deficit of Rs 1.7 trillion and it did not need the EAC member to point out that “at the heart of the crisis is a shortfall in provisional tax revenues for 2018-19. It is mainly due to a shortfall in GST revenues (but also personal income tax revenues), compared to the numbers presented in the revised estimates”.
What then obtains is a possible fudge around India’s claims of sticking to the straight and narrow path of fiscal prudence, institutionalised by the Fiscal Responsibility and Budget Management Act. The overarching objective of the Act was injecting fiscal discipline, not prompting chicanery to show deficit at 3.4 per cent and pat oneself on the back though the actual deficit may well be 4.3 per cent of the GDP.
Several areas of under-budgeting are obvious as are GDP over estimations but revenues are what demand close attention. Gross tax revenue as a proportion of GDP declined to 10.9 per cent in 2018-19, lower by 0.3 percentage points from the 2017-18 numbers.
The Economic Survey confirms that indirect tax revenues fell short of budget estimates by about 16 per cent because of the GST slip-ups and things do not seem to be stabilizing given that the June tax mop-up dropped under Rs 1 trillion, to Rs 99,936 crore, for the first time in FY2019-20. The two years that the government had asked for during the GST launch on 30 June 30-1 July 2017 are up. On the one hand, glitches are yet to be sorted out and, on the other, payers are crying for moderation and justifiably so.
The Economic Survey also talked of a planned Rs 11.5-lakh crore mop-up from direct taxes and Rs 7.43-lakh crore from GST in 2018-19; numbers that stand belied. Worse, nothing in the budget suggests a sound strategy to meet the deficit, save for a poorly conceived one of overseas borrowing. There could be little that is more fraught with risk than this step and economists, Roy included, should persist with putting information about these risks in the public domain, shrugging off the government’s dismissal of them as “professional pessimists”. Economics, decried as purveyors of a ‘dismal science’ even in the past, should continue to focus on honesty around numbers to achieve inclusive, balanced and sustained growth.