A Numbers Game

The growing irrelevance of the annual budget

pradeep gaur / mint / getty images
01 March, 2020

The annual budget, presented by the finance minister, is one of the most awaited government documents every year. Seen as a statement of account of the nation—it spells out how the government intends to mobilise resources and spend public money—these documents show the economic priorities and the agenda of the government. Unlike many other government documents, budgets are presented to the parliament, debated and voted upon, and thus, the commitments made in a budget document assume a certain sanctity.

However, since the National Democratic Alliance government came to power in 2014, this sanctity has been fast eroding and is virtually extinct at this point. The government has repeatedly taken decisions that contradict commitments made in the budget, making the mandatory parliamentary approval of the budget a farce. The numbers presented in the budget over the last few years, just like other economic data put out by the government, hide more than they present. This reduces the document to little more than a media-management exercise.

For the last three years, grave doubts have been raised about the estimates provided by the government on the fiscal deficit—the amount by which the government’s income falls short of its expenditure. Most economic experts believe that the fiscal deficit numbers presented are grossly underestimated. In the absence of any clarification from the government, several estimates of the “real” fiscal deficit have been circulated in the media. Last year, the Comptroller and Auditor General joined commentators in questioning the government’s figures. The government seems to have been playing around with data on both its receipts and expenditure. For showing lower expenditure, it has been using “off-budget” borrowings, which it does not have to reflect in the budget document. For instance, it forced the Food Corporation of India to borrow from the National Small Savings Fund, shifting the financial burden of food subsidies out of the budget. As a result, the FCI is now burdened with an unsustainable debt. While past regimes have also used such accounting techniques to manipulate numbers, the present government has taken these tactics to a new extreme.

Given the separation of powers, the executive must get the approval of the legislature on the budget. However, the government seems to have no regard for these institutional safeguards. This began with the implementation of the Goods and Services Tax, in July 2017, which took indirect taxes out of the budget exercise. Since then, indirect taxes have been decided by a body called the GST Council, headed by the finance minister, which does not require the approval of the parliament. GST rates are now revised frequently following the logic of political expediency. For instance, the GST on Khakhra—a popular Gujarati snack—was reduced from 12 percent to five percent just before the Gujarat assembly elections. Since GST receipts form a large part of the total tax revenue of the government, the frequency of revision in tax rates has major implications making the estimates in the budget questionable.

Himanshu is assistant professor of Economics at the Centre for Study of Regional Development, School of Social Sciences, Jawaharlal Nehru University.