Another controversy has broken out about official data. This time it is the budget data. The finance minister in her reply has tried to explain it but issues remain. It is more serious than the earlier controversies because it is related to data presented to Parliament.
The earlier controversies about the correct GDP, unemployment-employment data, Mudra loan data and farmers’ suicide data did not pertain to what is placed before Parliament.
The Union Budget consists of major items that are mandated by the Constitution. Article 112 mandates that the Annual Financial Statement be placed in Parliament. It contains the data on expenditures and receipts of the Government of India for the coming year (in the present case the continuing year 2019-20). It is also to give the data for the current year (which is still provisional and called the Revised Estimate) and in the present case, the year 2018-19. It also gives the actual figures for the earlier year (2017-18).
Why are these figures important? The budget figures for the next year are prepared a year in advance. So, the figures for 2019-20 are estimated in 2018-19 (the current year). Since the year is yet to start, one can only give the estimates for the coming year.
That is why the figures given are called Budget Estimates. How are these estimates arrived at? The data for 2019-20 is prepared on the basis of the data for 2017-18 and 2018-19.
But, there is a problem. While 2017-18 is fully over and its actual figures are available, the year 2018-19 is still in progress so data is provisional. It is called the Revised Estimate — revised compared to what was estimated in the budget when it was presented.
In brief, the budget document gives the Budget Estimates for the year for which the budget is made, Revised Estimates for the current year in which the budget is formulated and the actual figures (though still not fully final) for the one year prior to the current year. The accuracy of the actual figures and the revised estimates determines the accuracy of the Budget Estimates.
So, if the Revised Estimates are not correct, there would be an error in the Budget Estimates for the next year. If the Revised Estimates are incorrect then even the current year’s budget arithmetic would turn out to be incorrect with serious consequences for the economy and more importantly for the accountability to Parliament.
Article 113 of the Constitution requires that the Lok Sabha vote on the estimates of expenditure from the Consolidated Fund of India, which is a part of the Annual Financial Statement and which is presented as Demand for Grants. There is usually one Demand for Grant for each ministry and department. Thus, if incorrect figures are placed before Parliament, the vote would also be on these incorrect figures.
The problem that has arisen with Budget 2019 is that the Ministry of Finance has put out incorrect figures for expenditures and revenue. As already stated, a budget contains estimates for the coming year so the figures that are presented can change — estimates going wrong is not the issue. The issue is actual available data is not utilised for preparing the estimates for the coming year. It can be argued that there is deliberate attempt to mislead the Parliament. Let us try to understand this.
The full budget for 2019-20 had the full data for 2018-19, since the year was over on March 31. This data was audited by the CGA, which is the government auditor. In its report presented in early June, it gave the final figures given to it by the Ministry of Finance. So, the data put out by the CGA, at least a month before the budget was presented, was available to the Ministry of Finance officials.
The data for 2018-19 showed that revenue was short by Rs 1.6 lakh crore. One could argue that when the interim budget was presented on February 1, the full data for 2018-19 was not available so the Revised Estimates did not reflect the shortfall in revenue.
However, even this could have been anticipated if the fact that the fiscal deficit in December had already exceeded the annual target was taken into account. The interim budget showed that GST collections were short by Rs1 lakh crore, so revenue shortfall was already known.
Can there be any excuse to just reproduce the interim budget figures in July when the Ministry had the data given to the CGA? Further, the data was presented in the Economic Survey, so why not in the budget?
If expenditures are kept at the level earlier planned and revenue is short then the revenue deficit and fiscal deficit will turn out to be larger, but that is not the case in the final budget. This can only imply that the expenditures were cut. This leads to a demand shortfall in the economy.
There is further non-transparency when the incorrect figures are used to calculate the budget estimates for 2019-20. For instance, revenue projection is that it would grow by 25.6 per cent on the correct revenue figure for 2018-19. Is that feasible in a slowing economy? The budget is also drawn on the basis of a GDP growth of 12 per cent while the interim budget assumed it would grow at 11.5 per cent, while the economy is known to be slowing down (to about 9 per cent nominal growth).
In brief, if analysts argue that data has been window dressed to show a better performance of the economy, they are not wrong. But, what should parliamentarians make of it, unless the ministry puts out another set of figures for the vote in Parliament?
This article first appeared in the print edition on July 19, 2019 under the title ‘Just window dressing’. Kumar is Malcolm Adiseshiah Chair Professor, Institute of Social Sciences and author of Indian Economy since Independence: Persisting Colonial Disruption.