Subhrangshu Sekhar Sarkar
Presenting a budget in the year which experienced a pandemic is the toughest task to be done by any Finance Minister. Nirmala Sitharaman, the Union Finance Minister, has done this task on the first day of February this year. The situation happened to be an abnormal one caused by an unprecedented crisis which has shattered the economy and shaken the roots. The country came to a standstill, the economy was in complete halt, production stopped, there was no demand, and people lost jobs in every field. A massive migration of workers from the urban areas to their rural abodes took place. The governments, both at the Centre and in the States, were in urgent need to pump money into the economy. The Prime Minister of India came out with a whopping Rs 20 lakh crore package for the revival of the economy. Immediately after declaring complete lockdown, the PM announced the Pradhan Mantri Garib Kalyan Yojana (PMGKY), valued at Rs 2.76 lakh crore by providing free food grains to 800 million people, free cooking gas for 80 million families for months, and cash directly to over 400 million farmers, women, elderly, poor and the needy. The State governments also tried to supplement the efforts of the Central Government to keep the economy on the track. For example, the Government of Assam is in the spree of announcements which will have a huge financial burden not only as capital investments but also recurring expenses for the years to come. One-time grants to people for boosting the demand may be understood but when medical colleges, educational institutions, etc., are opened, there will be a requirement for sustainability by maintaining minimum standards. On February 5, 2021, the Government of Assam distributed appointment letters to more than 29000 teachers by making their jobs regular. A great effort indeed and the State Government deserves appreciation for the same. The only hitch is the anxiety of the revenue collection. Same is true for all other announcements that are made in recent times as the State will be requiring huge funds for continuance of these. A State like Assam whose internal revenue generation is not sufficient, it will be a big challenge for the successive State governments.
The year 2020 was a unique year where the revenue was less, and expenditures were high both for individuals as well as for governments. One could see many families who were using their savings to manage their day-to-day life when their earnings were stopped because of the nationwide lockdown imposed since March 2020. Same the case with the governments as their revenue also fell drastically because industries were closed, production hampered, etc. On the contrary, the governments needed money to provide to the people.
The Union Budget is the description of the expenses and revenue that the Government plans for the next financial year. The Government’s expenditure list is huge while the revenue sources are limited. There are two major sources of revenue, viz., tax and non-tax. In the tax domain, there are direct tax and indirect tax. In direct tax, at this moment, income tax is the only effective one but the irony is that only a meagre percentage of the population pays income tax. In spite of all the efforts, a major chunk remains outside the income-tax net. The Government is under constraint to give pressure to these taxpayers, majority being the salaried class. The other source is the indirect tax where GST plays the main role supplemented by excise duty on petroleum products. The Government finds the easiest way for revenue collection through the indirect tax sources but there is a rider that indirect taxes are regressive in nature. It means it hurts the poor more than the rich. As such, much reliance on indirect tax goes against the basic philosophy of good governance.
Another source is the non-tax revenue where the profits for the PSUs should have played a major role. But incidentally, the majority of the PSUs are not contributing; rather they are eating up the taxpayer’s money. As such, the Government has decided for generating revenue by way of privatization of the PSUs, their unused properties, etc. An amount of Rs 1,75,000 crore have been earmarked in this year’s budget for the same. The decision is not easy as one could see the sad faces of many people who believed in the ‘socialist’ pattern of economy which encourages coexistence of the public sector and private sector. Phasing out public properties into the hands of the private sector is, of course, a decision difficult to be accepted by many.
For a welfare country, expenditure always surpasses income and that too in a year where such an unprecedented event happened. The excess of expenditure over income is the deficit and this is the main crucial point where the budget is built. In May 2020, the Government announced the Atmanirbhar Bharat (ANB) package having a total financial impact of about Rs 27.1 lakh crore which amounts to more than 13% of GDP. The PMGKY, ANB and announcements made later were like mini-budgets in themselves.
This year’s fiscal deficit is a record one in recent times which stands at 9.5% of GDP in 2020-21. The budget aims to keep it at a lower figure of 6.8% of GDP. But looking at the trends of expenditures by the Union Government as well as by all State governments, it will be a very tough task. The Government intends to perform this task by increasing the buoyancy of tax revenue through improved compliance of tax laws, and also by increased receipts from monetization of assets, including privatization of public sector enterprises and land. For furtherance of the growth of the economy, the Government has earmarked some areas of priorities in this year’s budget where, of course, ‘health and well-being’ leads the list. Other ones are physical & financial capital, infrastructure, inclusive development for Aspirational India, reinvigorating human capital, innovation and R&D, etc. The Government did not wish to tinker with the income tax system and kept it the same. However, after the declaration in the budget regarding issue of IPO by LIC, privatization of public sector banks, selling of PSUs’ unused properties, allowing 74% of FDI in insurance, etc., the stock market could see a huge jump in the Sensex echoing the Government’s intention for corporate sector growth.
It is time that the Government should do something to ensure public confidence in the banking sector rather than just enhancing the deposit insurance cover from Rs 1 lakh to Rs 5 lakh for bank customers.