Interim finance minister Piyush Goyal announced the Interim Budget today. The assumptions the government has made on the receipts side seem more than a tad aggressive and overly optimistic, given its own assumption of nominal GDP growth. For one, receipts from Goods & Services Tax in the current year are a good 10-11 percent higher than economists’ estimates, and the receipts from such taxes are seen still over 18 percent higher in fiscal ending March 2020. But what’s even more optimistic is the expected increase in proceeds from disinvestment.
To put this in context, the government has not even achieved half its target of Rs 80,000 crore for the current year till the end of December 2018, and to expect to collect Rs 10,000 crore more in the next year (budgeted estimate of Rs 90,000 crore) seems more than a little unlikely. And this is after adopting various innovative tools like buybacks, extra dividends, selling of state-owned entities to other state-owned entities and so on. Let me also not forget the exchange traded funds.
In a nutshell, in the year gone by, the Govt has done everything it could on the disinvestment front that it could do, through means largely under its control. Already, global rating agencies are pointing to the weakening finances of public sector enterprises following hefty dividend payouts and buybacks. Such options will, therefore, run out fairly soon, putting pressure on the government to eventually undertake public offers for sale and strategic disinvestment. The big question here is: will share offers by public enterprises find many takers? Given the steps taken by the government to control prices of fuel distributed by state-owned oil marketing companies, after a public furore over rising inflation, investors are clearly disillusioned about the projected autonomy of public enterprises. This will dampen appetite.
The alternative, which remains is strategic disinvestment. This is the one path that can ensure significant garnering of resources, and is what all eyes will be on in the next fiscal.
The other big source of funds for the government next year will be borrowings, which are projected to rise by over Rs 69,000 crore. Much of the farmer income support would be funded through this increase.
To sum up, more sales of the family silver and higher indebtedness are what will finance the proposed income support to poor farmers and the tax benefits to members of the middle class in the next fiscal. And given the high expectations of tax revenue growth and the ambitious disinvestment target, it is very likely that even more borrowings will need to be undertaken, than is being budgeted now. This will put pressure on liquidity and hamper capita investments. Not a great recipe for growth, when the economy is faltering in a slowing world. The only silver lining is a boost to consumption from the sops offered. We can only hope it balances out much of the worries.