Opinion Engineering stagflation
And there is little in the budget for those who would be hit most
If there is a standout feature to Budget 2013-14,it is this: Finance Minister P. Chidambaram seems to have been overwhelmed by a desire to record a declining fiscal deficit in his books. Having slashed expenditures during the final months of financial year 2012-13 to deliver on the revised fiscal deficit target of 5.2 per cent of GDP,he has chosen to combine optimistic estimates of increases in receipts with substantially curtailed budgeted expenditures to deliver a 4.8 per cent fiscal deficit of the GDP figure for 2013-14. But the FM seems to have manoeuvred much and sacrificed a lot to achieve that goal.
To start with,revenue estimates reflect excessive optimism regarding revenue buoyancy. Total tax revenues are budgeted to rise by 19 per cent relative to the revised estimates for the previous year because of an estimated 17 per cent increase in corporate taxes,20 per cent increase in income taxes and 36 per cent in service taxes. This,despite the fact that even the proposed increase in taxes on high-income individuals and corporations has been restricted to a surcharge,rather than an increase in rates. In addition,the finance minister has given himself a bonanza in terms of miscellaneous capital receipts,which refer to funds garnered through disinvestment and measures like the sale of spectrum. That receipts item is projected at Rs 55,814 crore in 2013-14,as compared to a revised figure of Rs 24,000 crore in 2012-13,a budgeted figure for last year of Rs 30,000 crore and an actual for 2011-12 of Rs 18,088 crore. The FM has just presumed that he has a deep till to dip into.
That play with numbers was to be expected. But what is surprising is that this has not helped the minister deliver the expenditure increases expected in the last full budget before the general elections. Relative to last years budget,total expenditure is expected to rise by only 11.7 per cent,which makes the increase in real terms (after adjusting for inflation) extremely small. That hardly helps when growth has slumped to 5 per cent.
Needless to say,some reordering of expenditures has taken place. But there is little increase in expenditures of a kind that would be directed at those who need it most,and constitute a substantial chunk of those voting for a new government. Consider,for example,the flagship NREGA. A major push was expected on this front,at least with the election in sight,even if not out of a desire to deliver the immense social good implicit in such a scheme. But allocations for the scheme are budgeted at Rs 33,000 crore in 2013-14,which is the same as was budgeted in 2012-13 and marginally above the Rs 29,387 crore actually spent this year.
There are other curbs on welfare spending as well. Aggregate subsidies are expected to fall by more than 10 per cent in 2013-14 when compared with the revised expenditure estimate for 2012-13. Despite the promises made in the discussion on the food security bill,food subsidies are projected at just Rs 90,000 crore in the coming year,as compared to the Rs 85,000 crore spent this year. The fertiliser subsidy at Rs 65,971.50 crore in 2013-14 is almost exactly equal to the Rs 65,974.10 spent in 2011-12. And the expected decline in aggregate subsides is expected to be ensured by a fall in the petroleum subsidy from Rs 96,880 crore to Rs 65,000 crore. Given the knock-on effects this would have on other prices (such as railway tariffs,for example),this is bound to aggravate inflation.
In sum,in an effort at fiscal consolidation on paper,the budget does not provide for any fiscal stimulus to reverse the growth slowdown,it reins in welfare spending,and would aggravate inflationary trends. The stagflation that India is experiencing is likely to intensify,and there is little in the budget for those who would be hit most. Under other circumstances,the FMs political colleagues may have ignored a budget that his tiresome speech sought to obscure. But with an election in sight,even they are likely to pay more attention and cry foul.
The writer is a professor of economics at Jawaharlal Nehru University,Delhi
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