Editorial

Notably transparent

| Updated on February 02, 2021

The Budget has taken a big step towards displaying a transparent set of numbers

A welcome change in the Union Budget of 2021-22 compared to the past is the accent on transparency and credibility. There have been questions regarding the underlying growth assumptions of past Budgets, the practice of shifting large expenses off the Budget, show a lower borrowing number by making public sector enterprises borrow on the Centre’s behalf and so on. Finance Minister Nirmala Sitharaman has set a good precedent in many of these contentious areas this year, and it is hoped that these practices are here to stay. A significant change from the past is the conservative assumption of nominal growth of 14.4 per cent for FY22, which is more than 100 basis points lower than that indicated in the Economic Survey and the recent IMF projection. This makes the underlying revenue growth numbers realistic and probably gives the Finance Minister the chance to over-achieve the Budget projection.

A long-standing complaint has been that the Revised Estimates of revenue and expenditure are out of sync with the actual collections and spending for the ongoing fiscal year, as captured by the Controller General of Accounts. In the latest Budget, though, the growth/decline in tax collections in the Revised Estimate for FY21 is in line with the actual collections between April and December 2020. Yet another route used to obfuscate the actual deficit was to make the Food Corporation of India take loans to meet part of the food subsidy bill. This part of the food subsidy would be off the Budget. The amount owed to FCI has grown to ₹2.54-lakh crore, and Sitharaman has done the right thing by discontinuing this practice from FY21. The consequent increase in the food subsidy bill to ₹4.2-lakh crore in FY21 and ₹2.4-lakh crore in FY22 due to this adjustment is partly responsible for increasing the fiscal deficit for this fiscal year and the next. Details of extra budgetary resources raised by various arms of the government through bonds and NSSF loans, provided as an annexure to the Budget speech, shows that the Centre is now ready to bare it all. Pegging the disinvestment target for FY22 at a much lower ₹1.75-lakh crore, compared to the Budget Estimate of ₹2.1-lakh crore in FY21 is yet another indication that the Centre is no longer interested in inflating receipts by setting hard-to-achieve disinvestment targets. The number for FY22 appears especially sober given the booming stock market and that stake sales process of many PSUs is at a fairly advanced stage.

The fallout of the Centre’s resolve to bare-all has been the enormous government borrowing figure for FY22 at ₹12.05-lakh crore. The fiscal glide path is further indicating that the deficit will move lower to 4.5 per cent of GDP only by 2026, implying elevated borrowing in the interim period. This is not going too well with bond markets as seen in the hardening 10- year bond yields. The RBI will have to deploy all the tools in its arsenal to keep the yields under check.

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Published on February 02, 2021
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