Numbers do not lie

An ill-advised attempt to fudge the numbers and present a so-called ‘budget for growth’ is unpardonable.

Finance Minister Nirmala Sitharaman holds a case containing a tablet device, during the Budget Session of the Parliament in New Delhi.

Written by: P Chidambaram

5 min readFeb 21, 2021 08:44 AM IST First published on: Feb 21, 2021 at 04:00 AM IST

The Finance Minister, Ms Nirmala Sitharaman, made combative speeches on the Budget in the Rajya Sabha on February 12 and in the Lok Sabha on February 13. In the Lok Sabha, without being offensive, she referred a dozen times to my intervention on the previous day, I take these references as part of the thrust and parry of parliamentary debate.

However, I take exception to taking liberties with numbers. The Budget is all about numbers: every number must be justified. If just three numbers are wrong, the Budget — that is the Annual Statement of Revenue and Expenditure — is a worthless pile of papers. The three numbers are the estimates of Total Receipts, Total Expenditure and the Borrowing (= Fiscal Deficit).

Three Key Numbers

When the Budget for 2020-21 was presented on February 1, 2020, I had questioned the credibility of the three key numbers. I had said the three numbers were ‘suspect’, meaning that their credibility was questionable. I had based my criticism on the fact that the GDP growth had slowed down for seven successive quarters (4 quarters of 2018-19 and 3 quarters of 2019-20) and was poised to slide further in Q4 of 2019-20. Hence, I had argued, the projections for 2020-21 were optimistic and ambitious. The FM had angrily refuted my criticism.

A month later, the pandemic began to sweep India and 2020-21 began on an ominous note. The slowdown turned into a recession. All the numbers projected by the FM went for a toss. Even without the pandemic, she would have been proved wrong; with the pandemic, she was proved hopelessly wrong. Just see where we started (Budget Estimates) and where we will end (Revised Estimates) on March 31, 2021:

The same sordid story continues in the Budget Estimates for 2021-22, giving rise to questions. I asked some questions in Parliament, there were no answers; some I have added here.

Questions, No Answers

1. What is the basis of the optimism that tax revenues (net to Centre) in 2021-22 will increase at 14.9 per cent when they decreased by 1 per cent in 2020-21 over the previous year? Even assuming that the recession will end in Q1 of 2021-22, will the GDP grow sufficiently to yield a growth of tax revenues by 14.9 per cent?

2. When receipts from disinvestment fell short by Rs 1,78,000 crore in the previous year, what is the basis for the estimate of Rs 1,75,000 crore in 2021-22?

3. Is it correct that the RE of total expenditure in 2020-21 includes the re-payment of Rs 2,65,095 crore to the FCI for loans that the FCI had taken on behalf of the government? If yes, how can that be counted as ‘government expenditure’ that will stimulate the economy?

4. Likewise, does the BE of total expenditure in 2021-22 include the re-payment of a substantial amount to the FCI?

5. Having provided a paltry increase of Rs 3,266 crore under ‘Defence’, and a reduction of Rs 7,843 crore under Health (page 10 of Budget at a Glance), has not the FM grossly under-estimated the Total Expenditure in 2021-22? Will not ‘Defence’ and ‘Health’ require substantially more funds?

6. Has not the Budget under-provided for various departments such as Education and Energy and schemes such as the MGNREGA and Nutrition?

7. If Total Revenue has been over-estimated and Total Expenditure has been grossly under-estimated, is not the estimate of Borrowing (Rs 15,06,812 crore) in 2021-22 a misleading and perilous under-estimate?

8. Is the FM implying, contrary to the estimates of the RBI and other experts, that the average inflation in 2021-22 will be only 3.0 per cent? If yes, what is the basis of that assumption?

9. Why has the FM charted a glide path that will stop when the fiscal deficit (FD) will reach 4.5 per cent in 2025-26? Has the government abandoned the goal of reducing the FD to 3 per cent or below? Does it not mean that the FRBM Act has not been merely suspended but buried six fathoms deep?

10. In view of the estimated GDP (in constant prices) in 2021-22, has the government given up on achieving the goal of a USD 5 trillion economy by 2024-25?

Incompetent Governance

When the UPA demitted office after 2013-14, it left behind a GDP (in constant prices) of Rs 105 lakh crore, three times more than what it was in 2003-04. Since then, the GDP has crawled to Rs 131 lakh crore in 2017-18; Rs 139 lakh crore in 2018-19; Rs 145 lakh crore in 2019-20; and is expected to fall to Rs 130 lakh crore in 2020-21, the same as in 2017-18. Thus, due to incompetent management, the economy is at the same level as it was three years ago!

Budget numbers are indeed estimates; estimates can go wrong despite well-founded assumptions. I must nevertheless point out that an ill-advised attempt to fudge the numbers and present a so-called ‘budget for growth’ is unpardonable. It is the people that will pay a heavy price.