The Narendra Modi government has a surfeit of political capital but union finance minister Nirmala Sitharaman starts with some shortfalls in revenue capital.
Tax revenue to the central government grew by only 6 percent in FY19 against estimates of 19.5 percent. So, the interim budget FY20 tax target of Rs 17 trillion requires tax revenues to grow by 29.5 percent. Impossible!
The street expects tax revenues to grow by 15-17 percent to say Rs 15.5-16 trillion - that means a shortfall of about Rs 1 trillion by way of tax revenues. This tax shortfall will be due to shortfalls in income tax and Goods and Services Tax (GST).
Income tax grew by just 13 percent last year. The interim budget target of Rs 6.07 trillion of income tax requires growth of 31 percent. Not happening. It will more likely grow by around 16 percent. So that means an income tax of Rs 5.4 trillion implying a shortfall of Rs 60,000 crore.
Likewise, GST is estimated to grow in FY20 to Rs 7.6 trillion as against Rs 5.8 trillion last year. A more realistic number may be less by a trillion, so Rs 6.6 to 6.8 trillion.
On the other hand overshoot in expenditure looks very likely in the PM Kisan Samman Nidhi Yojana. It was budgeted for small farmers but has been now extended to all farmers. So, versus the budgeted Rs 75,000 crore, the expense may actually be Rs 87,000 crore.
Likewise, possibly up to Rs 70,000 crore of FY19 food subsidies may have been met by the Food Corporation of India (FCI) taking loans. Higher bank capitalisation has also been indicated by the government.
So from where will the money come? Maybe higher Reserve Bank of India (RBI) dividend is everyone’s guess and possibly higher deficit and higher market borrowing.
Pronab Sen, former adviser of the Planning Commission; Sajjid Chinoy, chief India economist at JPMorgan; Soumya Kanti Ghosh, group chief economic adviser of State Bank of India and Hitendra Dave, head of global banking & markets at HSBC India, discussed the challenges facing the Nirmala Sitharaman in her maiden budget.