Government Budgets

Need for expansionary fiscal stance in the Budget

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Expenditure in Budget

Mains level : Paper 3- Issues with expenditure estimates in the Budget

The article highlights the issues with the system of Budget presentation and suggest the areas to focus on.

Issues with expenditure and revenue estimates

  • Experience shows revenues being much less than the Budget projections: each year, this mistake is repeated and even amplified.
  • The expenditure estimates are even more disingenuous because they understate the actual expenditures that should be counted.
  • This concern has been repeatedly brought up by the Comptroller and Auditor General of India (CAG).
  • A CAG report in 2018 identified at least three methods of reducing the stated expenditure:
  • 1) Not paying for the full fertilizer subsidy.
  • 2) Not paying the central government’s dues to the Food Corporation of India (FCI) for the food subsidy, and forcing the FCI to borrow from the market.
  • 3) Using other special purpose vehicles to pay for infrastructure investment, like the Long Term Irrigation Fund.
  • In 2017-18, just those three items amounted to ₹1,29,446 crore or 1.8% of GDP.
  • These strategies are problematic because they are non-transparent and they also force other agencies (like State governments and public sector enterprises) to go in for expensive commercial borrowing.

What CGA data reveals

  • The data from the Controller General of Accounts show that between April and November 2020, revenues of the central government predictably collapsed, by around 18%, or ₹181,372 crores, compared to the same period of the previous year.
  • But despite that, expenditures should have gone up, because the lockdown-induced collapse in an economic activity meant that public spending would be the only thing keeping the economy afloat.
  • In three rounds of stimulus packages government claimed to inject amounts of ₹1.7-lakh crore in March, ₹20-lakh crore in May, and then ₹2.65-lakh crore in November
  •  However, the public accounts show that the total spending of the central government increased by only ₹86,301 crores.
  • That was only a 4.6% increase — not even enough to keep pace with inflation.
  • In other words, the central government reduced its real spending over the period of the pandemic and economic crisis.
  • This fiscal stance obviously affects people and also adds to contractionary tendencies in the economy, and prolongs the severe demand recession.
  • Policies that destroy informal economic activities eventually come to harm the formal enterprises as well.

Consider the question “There has been growing concerns that expenditure estimates presented in our Budget fail to represent the actual expenditure of the government. What are the reasons for that and how it could affect the reliability of government finances?”

Conclusion

The Budget this year needs to focus on moving to a more expansionary fiscal stance that prioritizes employment generation and public service provision.

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