Budget 2019: State of India's finances; all you want to know

Budget 2019 is very crucial for Narendra Modi government as it will be presented just months before 2019 general election. However, this will be an interim budget allowing the new government to take charge and announce the full budget later. Right from farmers, investors, taxpayers to common man all are eyeing new developments in the form of ache din for them in this budget. A budget is announced in order to target expenditures and revenue for a particular fiscal. It’s like a benchmark that is set on usage and spending by government for developing reforms. Ahead of the budget, let'us have a look at India’s finances in 2018-19. 

From the table below, it can be said that fiscal deficit has played a spoilsport for the NDA government so far in FY19, by exceeding budget target by nearly 115% to Rs 7.17 lakh crore as on November 2018. The target was set at Rs 6.24 lakh crore. Also, total expenditure continued to be an overhang as they have already exhausted 66% of budgeted target in FY18 to Rs 16.13 lakh crore FYTD19. The target was set at Rs 24.42 lakh crore.

India’s total receipts was not even half of what budget target was set. The country’s receipt stands at Rs 8.97 lakh crore as on November 2018 - which would be 49% of budgeted target set at Rs 18.18 lakh crore.

Meanwhile, central government revenue receipts were at Rs 8.70 lakh crore which was just 50% of budgeted target of Rs 17.26 lakh crore. The centre’s net tax revenue stood at Rs 7.32 lakh crore accounting 49% of budget target where it is set at Rs 14.81 lakh crore. 

Talking about centre’s receipt, JM Financials said, “Centre’s receipts up to Nov’18 grew 3.4% YoY vs. 4.6% YoY last year, with revenue realisation lower than last year- 49% of BE vs. 54% last year. Even after 8 months of collections, CGA data shows that CGST, IGST and Compensation cess up to Nov’18 stood at INR 3,839bn, which is 51% (vs. 57% last year) of the budgeted amount- INR 7,439bn.”

According to JM Financials, while FYTD19 Centre’s GST registered 50% YoY growth, our calculations suggest that the budgeted target may fall short by c. INR 1.5trn. Overall, indirect taxes have remained stagnant (0.1% YoY). Direct taxes too, have not shown any robust pattern of collections yet, i.e. as % of BE, they lag behind vs. last year’s realisation rate: 47.1% vs. 47.5% last year; although expanding at a modest pace (16%YoY). 

Interestingly, analysts at JM Financial highlighted that centre’s cumulative GFD as % of BE stood at 115% (INR 7.16trn; 3.83% of GDP) vs. 112% in Nov’17 (INR 6.1trn, 3.65% of GDP) due to less favourable revenue-expenditure realisation as % of BE vs. last year (exhibit 1). 

However, the analysts added, due to higher capex realisation this year, the revenue deficit was in a better shape vs. last year. The Centre has financed c.58% of its deficit through market borrowings.

Going forward, JM Financial continues to expect a 20 basis points fiscal slippage for the Centre. The research agency has mentioned four key pointers, which can be possibly taken into consideration in the upcoming budget. Firstly, unaccounted expenditure (MSP hikes, underprovided fuel subsidy, net supplementary grant). Secondly, revenue shortfall (GST, telecom, OMC dividend, excise duty cuts).

Even additional receipts through-residual services tax collections, import duty hikes, higher-than-budgeted income tax, and some expenditure cuts are expected.