INSUBCONTINENT EXCLUSIVE:
By Soumya Kanti GhoshThe Union Budget will be presented at a time when growth has declined to 5 per cent with a clear downward bias and the
outlook does not look promising
The only solace that the global outlook looks better with US and China closing in a trade deal and oil getting increasingly divorced from
Against this background, it is crucial that the budget gets its fiscal arithmetic right as such could make the first step towards a slow and
Interestingly, there are a lot of changes that could be made outside the budget itself and this piece is all about them.
The budget should
use the FY12 numbers as a mirror to itself while presenting the deficit
The significant decline in growth in FY12 (5.2 per cent from 8.5 per cent in FY11) was not anticipated and the government missed the budget
fiscal deficit target by a huge margin of 130 basis points (from a budgeted fiscal expansion of around Rs 31,409 crore to actual Rs 1.34
In the same vein, any attempt to peg fiscal deficit at closer to 3.5 per cent in FY21 budget will clearly look unreasonable and not credible
to the market as we will be lucky if we get a nominal GDP growth of 10 per cent in FY21
There is no harm if the fiscal deficit is maintained at the same level over FY20 and FY21 and incrementally reduce it beginning FY22 as
growth comes back to over 6 per cent
By repeatedly emphasising that we will stick to the mandated fiscal consolidation path during a year when growth is a serious challenge
makes us prone to non-transparent and non-credible fiscal rules that markets will not believe in.
First, some numbers
In FY21, assuming 10 per cent GDP nominal GDP growth, net government borrowings are likely to be closer to Rs 5.5 lakh crore if fiscal
deficit is taken at estimated 3.8 per cent of GDP
With repayment around Rs 2.35 lakh crore, gross borrowings of the Centre are expected to come at Rs 7.85 lakh crore
Higher fiscal deficit will push up securities issued against the small savings as the government will try to minimise its recourse to market
borrowings.
The government has already raised Rs 1 lakh crore through small savings in current fiscal and will be able to meet their budget
estimate target of Rs 1.30 lakh crore
In FY21 again it might increase it further.
This increased reliance on small savings in turn would make it difficult for the government to
cut small savings interest rate and thus bank deposit rates are unlikely to witness a material decline from current levels.
Given the crisis
Alternatively, it is imperative that the RBI backstops against good quality collateral
They must be identified to ensure the stability of NBFCs so that they can meaningfully withstand any worsening of the situation, both in
terms of access to liquidity and in terms of absorbing potential losses.
What about steps outside budget? As of March 2018, a total of Rs
7.8 lakh crore of tax revenue is under dispute and is pending before various tax appellate authorities i.e
the Commissioner of income Tax (Appeals), Income Tax Appellate Tribunal, High Court and the Supreme Court of India
Some of these are because of non-synchronisation in rules across regulators and needs to be changed.
For example, the Income-tax Act (Rule
6EA) continues to recognise bad and doubtful debts based on six-months overdue delinquency norms
However, the RBI guidelines provide for a period of 90 days of overdue delinquency norms to recognise bad and doubtful debts.
Similarly, the
banks are eligible to avail deduction in respect of provision made for bad and doubtful debts only upto 7.5 per cent of total taxable income
even when they are making provision for bad and doubtful debts in accordance with RBI guidelines.
The simplification in GST could be again
done by the GST Council itself
Among the major issues in GST are inadequate allocation of IGST to states and non-compliance of GSTR-1 and GSTR-3B
This mainly happens in case of business to consumers transactions as IGST is collected in the state producing the good while the input tax
credit will be collected in the state where consumption takes place.
As per the CAG report for the year ended March 2018, upto 31 per cent
Thus, better compliance and monitoring is possible if the GST filing is simplified for businesses and this will automatically lead to higher
revenues.
The other important change that could clearly happen outside the budget is finding a lasting solution to the telecom sector
Given that consumption has slowed down, if any of telcos discontinue their operations this could hurt investment sentiments and jobs.
We end
Even though growth outlook continues to look sombre, the rural sector is finally showing signs of better traction with food prices moving up
While this may be a bit of bad news for consumers the fact that the minimum support price has moved above market prices in select
commodities like cereals and some categories of pulses will ensure that farmer will make some returns
This is clearly visible in specific categories of pulses like moong, arhar and gram.
(The author is group chief economic advisor, SBI