In fiscal 2020-21, total expenditure RE at Rs 34 trillion, posting an increase of 13% over budgeted estimates. Budgeted revenue expenditure in Fy22 is Rs 16.8 trillion (excluding state grants) which reflects decrease of Rs 1.2 trillion against FY21. The revenue expenditure is estimated at 48% of the total expenditure. The major components of the revenue expenditure of the Government include Interest payments and debt servicing (23% of total expenditure), Subsidies (10% of total expenditure), Salaries and Pensions (5% of total expenditure), Defence expenditure (10% of total expenditure.
The government has budgeted for a 16.67% increase in total taxes with corporation tax rising by 22.64% and personal income tax rising by 22.22% in the budget for fiscal 2021-22. On the indirect tax front, the government has budgeted for a 22.306% increase in GST collection, for FY2021-22. Union Excise duty is budgeted to decline by 7.20% and Customs duty is budgeted to grow by 21.429%.
The finance minister, Nirmala Sitharaman unnerved the bond markets with additional borrowing of Rs 800 billion for this fiscal year and Rs 12 trillion gross borrowing for next fiscal year. Fiscal deficit was pegged at 9.5% of GDP for fiscal 2020-21 and 6.8% for fiscal 2021-22. Fiscal deficit in absolute terms is at Rs 19 trillion for last fiscal year and is budgeted at Rs 14.6trillion for this year.
The full budget for fiscal 2019-20 presented by the Financial Minister, Nirmala Sitharaman, was largely favorable to the bond markets. Gross fiscal deficit was projected at 3.3% of GDP as compared to 3.4% projected in the interim budget. The gross and net borrowing numbers are largely unchanged from the interim budget.
The government did a fine balancing act in its budget for 2018-19. Despite revision of fiscal deficit targets upwards, the borrowing numbers look benign and this will appease bond markets that have been hit hard by weak sentiments.
Union budget 20-21 highlights the challenges to fiscal consolidation from slower real and nominal growth, which may continue for longer than the government forecasts. The modest narrowing of the deficit to 3.5% in the fiscal year 2020-21 from 3.8% in the fiscal year 2019-20, sustained weaker growth and tax cuts would make gross revenue targets difficult to achieve.
The Economic Survey 2014-15 paints a bring picture for the Indian economy in the coming years, forecasting double digit growth, falling inflation expectations and improved macro economic framework. One factor, however, could move bond markets negatively is the survey’s call for a bit of flexibility on fiscal deficit, which could increase government borrowing.
The Government has accepted the Fourteenth Finance Commission recommendation to devolve 42% of Union Government’s net taxes to States, as against 32% being followed at present, which was the recommendation of the Thirteenth Finance Commission.