Government must dispel the confusion over budget data

The Union budget is the biggest economic policy event in India. It is to be expected that the government defends it and the Opposition criticises it. This debate ideally should be focused on policy decisions such as tax rates, expenditure allocations and special incentives for sectors which need them. Any such debate, however, is based on the sanctity of numbers given in the budget. If there is reason to believe that the budget numbers are not sacrosanct, then differences about the budget assume a completely different nature.

Maintaining such sanctity is not an easy task. This is because budget numbers are essentially projections. The government assumes a nominal GDP figure for the next fiscal year. It then projects its revenue receipts on the basis of tax rates. Realising projected revenues is crucial because both expenditure and deficit levels are pre-determined. The budget also gives revised estimates (RE) and actual estimates (AE) for every figure with a lag of one and two years respectively. Because a normal budget is presented two months before the completion of the fiscal year, on February 1, the RE numbers also have an element of projection. This year’s budget is different from normal budgets. Since it was presented in July, three months after the end of the previous fiscal year, there is no need to speculate about the government’s receipts and expenditures in 2018-19. In fact, provisional figures for 2018-19 are already available with the ministry of finance.

The numbers raise disconcerting questions. For example, provisional figures for net tax revenue accruing to the Centre are 12% less than what the RE numbers say they are. Similarly, there is a shortfall of 6% in the provisional expenditure figures compared to the RE numbers. While the government can argue that the RE numbers in the interim budget presented in February and final budget in July are the same, it does not help the fact that the budget numbers are not adding up with provisional figures.

This is bound to disrupt the calculations which form the basis of budget numbers for the current fiscal year (2019-20) as well. This is because the assumed tax buoyancy, which is the multiple by which taxes will increase for a one percentage point growth in GDP, would be radically different depending on whether one uses the RE or provisional tax figures.

The government will do well to dispel the current confusion, not just to deal with political criticism, but also protect the sanctity of the budget.