The last full Budget presented in an election year typically witnesses an expenditure spike, as was the case before the last two Lok Sabha polls in 2008-09 and 2013-14. However, as the NDA government finalises its last full Budget before the general elections next year, the room for that expenditure is severely restricted, given the uncertainty over revenue mainly due to dipping GST collections and rising global crude oil prices.
Figures show that the average rate of increase of government expenditure in the two years before the 2014 elections — 2012-13 and 2011-12 — was 8.5 per cent. The years before and after the 2009 elections were an aberration with a higher rate of increase in government expenditure due to the farmers’ debt relief scheme and a stimulus package, respectively. The government expenditure for 2009-10 was estimated at Rs 10.2 lakh crore, 15.9 per cent higher than the previous year. For 2007-8, it was estimated at Rs 7.13 lakh crore, an increase of 22.2 per cent over the previous year.
This time round, the government — total expenditure increased at an average rate of 8.4 per cent from 2014 to 2018 — may have a window of over 4-7 percentage points to increase its total expenditure, given the pre-election year trend.
In the previous full Budget in 2013-14 before the general elections in 2014, the government hiked its spending by 10.6 per cent. Similarly, it increased expenditure by 13.8 per cent in 2003-04, before the 2004 elections — sharply higher than the 6.6 per cent increase in expenditure estimated for the ongoing financial year, in comparison with the previous year’s revised estimate.
The government has indicated that it is likely to incur more expenditure on agriculture and related schemes in the upcoming Budget, with Finance Minister Arun Jaitley having already stated that agriculture is a priority area.
“We see in some places the problem of falling prices because of higher production. Farmers are not getting the right price for their produce. Many steps have been taken in the last few years to take farmers out of this situation. There has been some positive impact,” he said on Sunday.
With just 16 days left for the presentation of Union Budget for 2018-19, it could be seen as a cue for focus on agriculture sector being planned by the government, especially in the backdrop of the setback suffered by the ruling BJP in rural areas of Gujarat in the recently held assembly elections.
The agriculture sector is seen to be lagging behind this year with the lowest Gross Value Added (GVA) growth rate among all eight sectors of the Indian economy. As was detailed in the first advance estimate by the Central Statistics Office on January 5, “agriculture, forestry & fishing” is estimated to grow at 2.1 per cent in 2017-18 as against a growth rate of 4.9 per cent in the previous financial year.
Economists say that it is typical of governments to increase expenditure before the election year as the interim Budget is based on the previous year’s Budget, which is typically overstated.
“It makes sense for the governments to inflate the previous year’s Budget before the election years. The interim Budget in a election year is the operative Budget, the Vote on Account is formulated for 3-6 months and these are based on the previous year’s overstated Budget. It’s the perfectly rational thing to do. The government builds up base for next year with inflated expenditure and revenue forecast before the election year, whereas the actual expenditure is lower. This is standard,” said Pronab Sen, former chief statistician of India and country director for IGC’s India Central Programme.
On revenue uncertainty for next financial year, Sen said, “Usually, revenue forecasts are based on previous years’ trend. But, there’s no data history for GST to forecast the next year’s estimates.”
According to Kotak Institutional Equities, the government is expected to estimate a “significant increase” in expenditure in the 2018-19 Budget. “We expect the government to show a significant increase in expenditure on infrastructure and rural economy in its FY2019 Budget, matched by an increase in taxation revenues of 15 per cent. We assume the government will show a 15 per cent increase in indirect taxes, largely driven by its expectation of a pickup in GST revenues post the implementation of compliance systems (e-way bill system from February 2018 and invoice matching system sometime later),” a report said.
Since the slide in crude oil prices started from 2011 onwards, the government finances have gained immensely. As per government data, the average crude oil price per barrel of Indian basket has come down progressively from $111.89 in 2011-12 to $107.97 in 2012-13, $105.52 in 2013-14, $84.16 in 2014-15, $46.17 in 2015-16 and $47.56 in 2016-17.
The benefits, however, are waning since crude oil price of Indian basket has risen 18.7 per cent to an average $62.29 a barrel in December from $52.49 in April in this financial year.
The government has raised concerns about tax pilferage on account of evasion under GST and is initiating various measures such as e-way bill mechanism and invoice matching to plug the leakages. The government aims to collect Rs 9.7 lakh crore of indirect tax in this financial year and 9.8 lakh crore of direct taxes. The government has garnered Rs. 6.89 lakh crore as net direct taxes till January 15, while on the indirect tax front, it has collected Rs 7.35 lakh crore as of November 30.
GST collections have been declining since October, with the mop-up for November slipping to Rs 80,808 crore (as on December 25), the lowest since the July 1 implementation of the indirect tax regime. The November collections were about 14 per cent lower than the collection of Rs 94,063 crore recorded for July (as on August 31) and about 11 per cent lower than the projected monthly target of Rs 91,000 crore.
The government had garnered Rs 83,346 crore as total GST revenue for October (as on November 27), Rs 92,150 crore for September (as on October 23), Rs 90,669 crore for August (as on September 26) and Rs 94,063 crore for July (as on August 31).
Government finances are under pressure to meet this year’s fiscal deficit, which has been pegged at Rs 5.46 lakh crore or 3.2 per cent of the GDP. The country’s fiscal deficit had overshot the full year estimate of Rs 6.12 lakh crore, rising to 112 per cent of the Budget estimate for 2017-18 during April-November.