Tuesday, 29 November, 2022
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Budget 2020 is now useless. Modi govt must present a new one

Covid has ensured Modi govt won’t meet 20% growth in tax collection target. That would be a terrible assumption to make in a pandemic-hit economy.

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The Narendra Modi government needs to present a new budget for 2020-21. The gross tax revenue it hopes to earn during the course of the year is simply not achievable now.

In 2019-20, the Modi government had earlier hoped to earn gross tax revenue amounting to Rs 24.61 lakh crore. The gross tax revenue is a sum of various taxes such as corporate tax, personal income tax, union excise duty, goods and services tax (GST), customs, etc., that the government hopes to earn. A part of this revenue is shared with the state governments.

The government’s gross tax revenue estimate for 2019-20 proved to be very high and was later revised to Rs 21.63 lakh crore. But even the revised estimate was highly optimistic as the Modi government ended the financial year with Rs 20.10 lakh crore in its kitty, about 7 per cent less than the revised estimate.

Clearly, even before the Covid-19 pandemic struck, the bureaucrats in the finance ministry were overestimating the revenue that the government was going to earn in 2019-20. Of course, the arrival of the coronavirus crisis in late January ended any possibility of the Modi government meeting its tax collection target.

The low tax collections have created a major problem for the central government in 2020-21. The gross tax revenue that the government will end up earning this year will be significantly lower than what it hopes to earn.

Also read: India’s economy may contract by 10-12% in 2020-21: Former finance secretary Subhash Garg

Projecting a fall

When the government presented the budget in February earlier this year, it had hoped to earn Rs 24.23 lakh crore as gross tax revenue during the year. This is 20.5 per cent more than what it finally ended up earning in 2019-20. 

The last time the Centre had recorded a jump of more than 20 per cent gross tax revenue was in 2010-11, when the collection had grown by 27 per cent. Of course, the overall economy during that year had grown by 19.9 per cent in nominal terms (not adjusting for inflation).

The trouble is, the Indian economy is more than likely to contract this year. Even in the most optimistic scenario, the growth rate is expected to be very low. Hence, expecting tax collections to grow by more than 20 per cent is a terrible assumption to make.

The gross tax revenue data for April 2020 is already out. The total collections during the month fell by 44.3 per cent to Rs 67,557 crore, in comparison to April 2019. The central GST suffered the biggest hit, with collections falling by 87.3 per cent to Rs 5,934 crore. This shows a total collapse in consumption due to the lockdown. The collection for May might be slightly better than April but it will be nowhere near the number needed for the gross tax revenue to grow by more than 20 per cent during the year.

Of course, as the economy gradually opens up in the months to come, the consumption will improve and so will the overall tax collection. Having said that, the psychology of a recession is setting into the minds of the citizens. As people lose jobs and face salary cuts and see their incomes fall, everyone will end up knowing someone else who is in financial trouble. In this scenario, even people who are not in trouble of losing their job or income, will reduce their overall consumption just to be safe. This, in turn, will impact the Modi government’s gross tax revenue that it hopes to collect.

Also read: Funds transfers to states set to take a hit as central tax collections begin to dip

New budget for new plans

In the budget for 2020-21, the government had hoped to earn Rs 2.1 lakh crore through disinvestment of its stakes in public sector enterprises. Of this, Rs 90,000 crore was expected to come from disinvestment of public sector banks and financial institutions (read the Life Insurance Corporation of India). With the sentiment of the stock market being weak, it is more than likely that the government won’t be able to earn this kind of money by selling shares.

In a way, the Modi government has already acknowledged it is going to miss its revenue target. It plans to borrow Rs 12 lakh crore during the year — 54 per cent more than what it had said in Budget 2020. This is a clear indication of the fact that the government doesn’t expect to earn as much tax as it had projected.

Having said that, the plan to borrow more was announced before the government unveiled the Rs 20.97 lakh crore economic package. Depending on which economist one believes in, the direct cost of this package for the central government during 2020-21 is expected to be anywhere between Rs 1.5-2 lakh crore.

Cleary, the extra borrowing may not be enough to finance the package unless the government cuts down some expenditure that it has planned for the year. This is why once things stabilise a little, the Modi government needs to present a new budget for the year. The current one has become useless.

Vivek Kaul is the author of the Easy Money trilogy. Views are personal.

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  1. It is fine, but then why Air-India was used to bring back all those poor Indians caught in other lands and who were asked to get out. The other private airlines could have volunteered. Sell all these ok, but it is the buyer who makes the money by a contrived and stage-managed auction (which we all know by now) in such auctions. Thus Govt will actually loose

  2. No point in holding on to Air-India, all those nationalised banks, big PSUs etc except to dole out favours to political cronies. Sell them and make money to tide over this crisis.

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