The Union Budget
is without doubt, the most important document the government presents in the
Parliament each year. The reasons are not too far to seek. It is the statement
that expresses the government’s plan to spend on various activities as also the
government’s measures to raise the revenues from the various sources to meet
its expenditure. Therefore, an analysis of the budget is always going to be of
critical import. The Finance Minister’s speech comprises two parts. The Part A
of the speech focuses on expenditure as also on the policy intent of the government.
It is in Part A that the government announces its economic policy for the year.
The issues of privatization, nationalisation, expenditure on populist schemes,
allocations for various social sector activities, industrial policy,
disinvestment etc. all get highlighted in Part A. Part B is about the tax
proposals. It has perhaps lost some attractiveness following the GST which
meant that indirect taxes by and large come under the purview of the GST
council.
While the
finance minister’s speech is important for the signals it sends, the devil as
they say lies in the details. The budget documents give at great length the
government’s plans to spend as also the raise the revenues. It is a perusal of
these documents that gives one an insight onto the real impact of the budget. Yet,
as they say, the numbers are more to make up. there is of course a strong case
that what matters is the broad policy direction indicated in the speech and not
on those micro numbers which often are presented to square off or set off to
the total expenditure. There of course also is a finance bill that accompanies the
budget. The finance bill gives the legislative teeth to the government’s
proposals on expenditure and tax policies. Along with the tax proposals and
expenditure, the bill also contains a lot of amendments to different
legislations in the domain of the finance and economic policy and at times
outside the realm too. These are usually the methods of the government to pass
legislation by stealth. Since the Finance Bill cannot be obstructed by the
Rajya Sabha beyond delaying it, it makes the government’s efforts easy to pass
such legislation where it expects will have a relatively tougher time in the
Rajya Sabha.
Glancing at depth
each of these budget documents would be painstaking. Yet one can go through the
highlights to get a broad jist of what the government intends. Secondly, the an
overview of the budget is presented through the Budget at a Glance. To those
desirous of the bird’s eye view of the budget, this document would be sufficient.
The budget at a glance begins with the revenue receipts. These are essentially
tax revenues. Taxes are collected and retained by the centre in some instances.
In instances like GST, taxes while collected by the centre are shared with the
states. The same happens with the income tax. Therefore the net central tax
revenues will form the core of the revenue receipts which also includes
miscellaneous items like PSU dividends, surplus from department of posts etc. The
capital receipts are the next heading in the document. The capital receipts
include the loan repayments and other receipts. The latter is about the
revenues earned through monetization of government assets and disinvestment of
public sector. This would give insights into the disinvestment targets for the
government. The tax revenues gives an insight into the buoyancy of the taxes and
thus some indicators of economic growth. Thus revenue receipts in addition to
the other receipts and repayment of loans will give the government what is
called its own receipts. The rest of the revenues is essentially the government
borrowings.
There are two
types of expenditure the government incurs. The first is the revenue
expenditure. This is incurred on day to day running of the government. These include
salaries to employees to interest payments the government does during the financial
year. The expenditure on various populist schemes also come under this heading.
It must be noted that the revenue expenditure does not create any assets and
thus no return is generated. Unlike revenue
expenditure, capital expenditure- the second type- is all about creation of
assets. It is the government spending on infrastructure. The expenditure
results in creation of an asset which becomes the source of revenue stream in
the future. Thus it generates a return. The glance at the expenditure patterns
would indicate the governmental spending. If the spending is more on revenue
expenditure, it is perceived the returns would not exist and the government is
spending mostly either on populist schemes or day to day running of the
government. The capital expenditure is on the other hand generates returns and
thus finds favour. Advocates of deficit financing believe that capital expenditure
financed by debt would pay itself out and thus would generate positive returns
to the economy.
The next
question would be a gap between expenditure and revenue. If there exists a
deficit, the question is on financing the deficit. The revenue expenditure must
be financed through the revenue receipts itself. The revenue deficit must be
zero or there must be revenue surplus in an ideal world. a presence of positive
revenue deficit would indicate the government borrowings to finance its day to
day expenditure like payment of salaries. The fiscal deficit, usually expressed
as a percentage of gross domestic product represents the level of the government
borrowings in the economy. higher deficit points to higher spending and the
inability of the government to mop up revenues sufficient to meet the spending.
There is of course quite a bit of debate on level of fiscal spending. There are
arguments for fiscal expansion. These insights into government thinking could
be obtained through a glance at the numbers of the fiscal deficit. Primary
deficit is fiscal deficit minus interest payments. Primary deficit indicates
the source of fiscal deficit. If interest payments are causing the deficit or
in other words, the past spending resulting in present interest payments, the primary
deficit would be a surplus. It would be good indicator of current fiscal
discipline versus the past fiscal discipline.
As one goes
further, there would be pie-charts highlighting the percentage share of each
item under revenues as also under expenditure. These gives us insights on the sources
of the revenues as also the expenditure. To a beginner this would be a good
primer to start understand the budget.
Comments
Post a Comment