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Journalism of Courage
On Thursday evening,just after market hours,Standard amp; Poor8217;s issued a press release. The operative portion of the release said,The latest Budget details have no rating impact on our sovereign credit rating on India, at BBB-/Negative/A-3.
The bland announcement at a time when the third quarter gross domestic product figures showed the economy has grown at only 4.5 per cent reaffirmed the biggest concern and relief for the minister.
The finance minister had thus begun the operative segment of his budget speech with this number. Red lines were drawn for the fiscal deficit though8230;I know there is a lot of scepticism.
This is the story of Budget 2013-14. It has staved off the downgrade,plumped for investment at the cost of consumption and tried to make India a better place to invest in. In the process,it has been harsh on expenditure. The rural development ministry is shown to have got a 46 per cent rise in budget outlay but that is because the comparison is from a vastly scaled down outlay of Rs 55,000 crore from the Budget Estimate BE of Rs 70,000 crore. The estimate for 2013-14 looks far better in the bargain.
Similarly,the Budget puts out Rs 10,000 crore for the anticipated Food Subsidy Bill. The food subsidy as per the actual allocation has risen by only half,at Rs 5000 crore.
So Chidambaram has used the scalpel on the subsidies too. As the medium term fiscal policy statement notes,Major subsidies in the Revised Estimates RE for 2012-13 have increased to Rs 2,47,854 crore as compared to the Budget Estimates for 2012-13 of Rs 1,79,554 crore. The major part of increase has come from petroleum subsidies that went up from Rs 43,580 crore in BE 2012-13 to Rs 96,880 crore in RE 2013-14.
This is a 122 per cent rise that the minister has clawed back in 2013-14.
However there is a catch the under-recovery bill of the public sector oil companies from the last quarter of this fiscal is not yet paid. This will shave off another Rs 30,000 crore from the provision made for the next fiscal. So essentially,Chidambaram is starting out with less than he has provided for.
But then the minister is hopeful. On the pricing issue,especially on petroleum,the Budget mandarins expect the tricky diesel pricing will be settled soon. The basic problem with diesel pricing that the government has been facing is that any delay in price correction makes further required price corrections steeper and hence even more difficult.
This triggers a vicious cycle of high subsidy and rigidity in the administered prices. To resolve this issue,after effecting a substantial price hike of 5 per litre,the government has allowed Oil Marketing Companies to apply small price corrections on a frequent basis.
This approach will ensure that the consumer will not feel the pinch of upward revisions as revisions will be small and at the same time it will help the government move towards eventual decontrol. It will also ensure that the impact of diesel price increase on inflation is minimised. If there are no international shocks in the oil sector,it is expected that in a year or two the government will be able to decontrol diesel fully.
The critical element to make petroleum and food subsidy stick will of course will be the Aadhaar trick. The cash transfer is not yet extended for food but it is obvious that these sectors too are on the range.
So what is the scene with major subsidies. They are budgeted at Rs 2,20,972 crore in BE 2013-14.
Total subsidies are at 2.6 per cent of GDP in RE 2012-13 and are budgeted to be at 2 per cent of GDP in 2013-14,the commitment the finance minister has taken on from the Vijay Kelkar committee.
To balance these giveaways the budget has built in an aggressive tax mobilisation target. It includes Rs 18,000 crore of additional revenue mobilisation measures.
The same document says,With these measures tax revenues in 2013-14 are expected to grow at 19.1 per cent. The tax to GDP ratio estimated in the Budget for 2013-14 is 10.9 per cent.
Budget Estimates for 2013-14 assumes a normal tax growth of 17 per cent over RE 2012-13 and remaining tax growth emanating from additional resource mobilisation measures. The bleak economic outlook gives the minister space to keep tax giveways to almost nil this year.
Once economic growth returns next year there will be demands for tax breaks. The fiscal policy statement points out,As the tax to GDP ratio increases,further improvements would be more gradual and difficult to achieve. The outlook for tax revenues for the years 2014-15 and 2015-16 have been designed keeping this in mind.
