Budget integrity

WHILE THE FINAL estimates of the Central Government's revenue and expenditure in 2000-01 are yet to be announced, the admission by Mr. Yashwant Sinha, Union Finance Minister, that there could have been a shortfall in revenue is as frank an admission as can be expected at this point that the fiscal deficit target was not met last year. When Mr. Sinha presented the Union Budget for 2001-02 much was made of the fact that the revised estimates for 2000-01 showed the fiscal deficit was, at 5.1 per cent of GDP, exactly as budgeted for a year before and contrary to most predictions made towards the end of the year. Scepticism about these revised estimates was drowned in the general acclaim of the budget, but it was apparent even then that the final judgment on the revenue and fiscal deficits would have to await the actual figures. Those now appear to have been valid doubts.

Mr. Sinha's revised estimates had showed that the fiscal deficit was on target in spite of revenue receipts being less than expected. That was premised on expenditure containment, especially Plan expenditure. It is unlikely that the overshooting of the fiscal deficit followed a sudden spurt in expenditure in the last two months of 2000-01. It has almost certainly arisen because revenue was even lower than indicated in the revised estimates. The precipitous fall in industrial growth in February was unexpected and the corresponding fall in collections from excise duty would have had an impact on the end-of-year receipts. But the slow-down in one month would not by itself have made a major difference to collections in the whole year. The truer explanation will turn out to be that the Finance Ministry made some highly optimistic assumptions when it prepared its revised estimates for revenue in 2000-01. At the end of January, when the budget preparations would have reached the final stage, the Centre's net tax collections for the first 10 months of last year were, at Rs. 98,295 crores, only 10 per cent higher than in the corresponding period of 1999-2000. For the Finance Ministry at that time to have then projected an additional 45 per cent increase (Rs. 46,000 crores) in net tax revenue in the remaining two months of the financial year was a case less of optimism and more of careless budget-making. The Gujarat earthquake cannot be blamed for one and every deterioration in the fortunes of the exchequer. Even if the earthquake had not struck it would have been impossible for the Centre's tax revenue to have registered a huge jump in February and March 2001. In the event, the Government's claim of having achieved fiscal discipline in spite of a sluggish industrial growth and a shortfall in disinvestment last year has turned out to be a hollow one.

This is not the first time that the Government, in its anxiety to show that budget targets are being met or that slippages are minor indulgences, has engaged in elaborate window-dressing to at least temporarily present a better than real picture. When the final figures are presented the financial year has long since passed and public memory of the optimistic results would have dimmed. Such window-dressing does raise questions about the integrity of the budget. Often the initial budget projections for the year cannot be realised because events go out of control. But there is very little reason for such large variations as we now see between the revised and final estimates of Government revenue and expenditure. After all, when the revised estimates are prepared the only unknown factors are the trends in the last two months. To base one's optimism about revenue and expenditure in the whole year on trends in those two months is fiscal irresponsibility of another kind.

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