As a majority of the nation stands in awe of yet another budget, I look at a few discrete numbers and put across a perspective that is typically missed.
THERE IS PREDICTABLE attention to the increase in government expenditure in the RE of 2021-22 and the whopping sum put aside in BE 2022-23, especially the euphoria over capital spend. While little can be spoken against the need for the government to accelerate spending, especially on the capital side to crowd in the private investment that has been slack, how the government would find resources is a moot question.
Debt burden grows faster than GDP
Look at the pace at which the country’s indebtedness has been expanding. Budget documents estimate a Central government debt of Rs 87.09 tn at the end of 2022-23 budget period which has grown in absolute terms by approx. 130 per cent since 2014-15. The comparable GDP growth during the same period is about 108 per cent. The debt increase in percentage terms is clearly outstripping the pace of GDP growth.
There may be a comfort that the Central government’s debt alone is still lower than many other countries’: however, the aggregation of debts of the states and the public enterprises may dilute that comfort. This is a subject of concern and a deeper study is necessary to look at the trend and the likelihood of the situation spinning out of control.
Tax to GDP ratio still low…
The growth in debt levels brings up the concomitant issue of the growth in tax revenues. There has been elation over the buoyancy of the GST revenues in the recent months. Actually the picture on tax revenues is hardly sanguine as the needle looks unmoved on the tax to GDP ratio which is almost stationery around 10 per cent between the years 2014-15 and 2022-23(BE).
Indirect tax component currently dominated by GST has grown at the rate of 161 per cent in absolute terms in the seven year period as compared to a mere 100 per cent increase in direct taxes. No expert knowledge of economics is essential to appreciate that indirect taxes are inflationary and affects the poor directly.
It is surprising that the budget documents have given little attention to the subject of disproportionate wealth accumulation in the country and the possible options to improve the direct tax support to the revenue mobilization efforts.
The continued reliance on cesses and taxes not shareable with the states keep alive the contentious issue of fiscal federalism; the redeeming point is that the proportion of shareable taxes has moved closer to 30 per cent of total taxes collected by the Union as compared to about 27 per cent in 2014-15.
The thrust of the budget to induce growth through higher spending by the government is well-directed. But there is the risk of the current compulsions putting the future generations in unsustainable debt.
The lack of effort to increase sustainable sources of revenue of the Union or facilitate options for the states to manage their finances better, should inform the ongoing debate.
