Fiscal conundrums in pandemic shadow

As is well known by now, the Indian economy took a massive hit due to the Covid pandemic and, as per the official estimates, the economy will contract by close to 8 per cent in 2020-21. Many independent researchers have projected the decline of the economy to be even sharper. It is quite clear that for fiscal 2020-21, the revenue shock has been huge.

As per the Budget, the fiscal deficit is expected to be 9.5 per cent of GDP. It is important to highlight here that this is only the fiscal deficit of the Union Government; if the estimates of State governments are added to this number the projection would be around 15 per cent. Further, as regards the next fiscal, it is supposed to be 6.8 per cent and gradually expected to come down around 4 per cent by 2025-26. It is important to note that all these projections remain in an uncertain zone as has been amply clear from the Budgets of the recent years. For instance, if we look at the revenue projections for 2018-19 and 2019-20, these were ₹1,90,776 crore and ₹2,97,772 crore lower than the Budget estimates for the respective years. As happens, the tax buoyancy figures have been consistently lower than the official estimates. Possibly one good proposal in terms of fiscal transparency is to make some changes in the provision in off-Budget items.

Of course, given the pandemic challenges it must be stressed that one should not get too perturbed by the relatively high fiscal deficit. It is necessary for the government to create enough space for revival of the economy, strengthening of health infrastructure and other urgent needs.

The real challenge is what ought to be the appropriate strategy of raising resources, as also the spending priorities. On both these counts, the current Budget, and indeed the economic/budgetary philosophy of the last few years, have been a major let-downs. If we look at the strategy to raise resources, the latest Budget has fundamentally relied on the well-known neo-liberal orthodoxy. The big-ticket announcement is that of accelerated disinvestment of public sector entities and increasing the stake of private sector in such entities so that effective decision-making is out of any government or public control.

Further, there is a considerable thrust on market borrowings. The obvious question to ask is: Why is it that the richest segments of the economy, who in fact increased their profits and wealth during the Covid crisis, are allowed to go scot free? It is important for any broad-based strategy of inclusive growth and shared economic opportunities to think of increased wealth taxes, on richest individuals and big corporations, and financial capital in general.

Issues like tax evasion, financial transaction taxes, etc., have to be on the front-burner. It is bad economics that Budget 2021-22 does not consider any of these issues.

Going by the number of the dollar billionaires in the country, whose total wealth for 2019 was estimated to be approximately ₹560 lakh crore, even a 1 per cent tax on them will fetch ₹5.6 lakh crore; and assuming 5 per cent of this wealth passing on every year, and imposing 33 per cent inheritance tax would generate an additional ₹9.3 lakh crore.

As may be noted, in the medium to long run, this is indeed a conservative estimate but these two taxes alone have the potential to raise a fabulous sum of ₹15 lakh crore.

The writer is Professor of Economics at Centre for Economic Studies and Planning, School of Social Science, JNU

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