Centre surpasses its revenue targets but higher food subsidy cancels gains

While govt made Rs 1.16 trn more revenue, it spent Rs 1.18 trn more on food subsidy too. But it can be said that the govt used the gains it made to settle FCI arrears once and for all

The union government went past its own revenue targets in the previous financial year 2020-21 (FY21), provisional numbers of gross tax revenue collection show. 

According to official data, the Budget estimate for gross tax revenue was Rs 24.2 trillion. After the severe impact of the pandemic became evident, the government revised the target to Rs 19 trillion in February. 

However, it managed to collect Rs 20.16 trillion as gross tax revenue in FY21, Rs 1.16 trillion more than the revised estimate.

This, ceteris paribus, would have improved the fiscal balance in favour of the government by Rs 1.16 trillion, or nearly 0.6 per cent of gross domestic product. 

FCI arrears

But one big move by the central government is likely to have had a negating effect on these gains. 

To steer the populace clear of massive deprivation due to stoppage of economic activity, the Centre provided more food grains than ever to the most vulnerable sections last year. 

But the premier agency which manages procurement and distribution of food, the Food Corporation of India, was also reeling from arrears of Rs 3 trillion and more from the previous years. 

The government promised to clear a major part of these in FY21. The revised estimate of government transfers to FCI was pegged at Rs 3.44 trillion in the Budget presented in February.

But before the financial year ended, the government transferred Rs 4.62 trillion to FCI, nearly Rs 1.18 trillion more than planned. 

So on the one hand, while the government gained Rs 1.16 trillion more than revised estimates from revenue, it also spent Rs 1.18 trillion more than revised estimates on one account, that of food subsidy. 

Thus, it can be said that the government used these gains to settle FCI arrears once and for all. 

How the revenue was earned

At provisional actuals, the government earned more than revised estimates on both the fronts, indirect as well as direct taxes.

The gains were the least on corporation taxes, which were merely 2.4 per cent more than the RE. Personal income taxes were 6.3 per cent more than the revised estimates. 

Goods and Services Tax collections by the Centre (Central GST, and GST compensation cess) were 6.4 per cent higher. 

Major gains accrued from excise duties, the taxes Indians pay every day on retail petrol and diesel. Excise collections were 8.3 per cent higher than RE. This is on top of the fact that excise was the only revenue channel where the revised estimates were higher than Budget estimates. 

Customs revenue grew fastest among all, by 18 per cent. But it occupies the smallest chunk among the five major tax revenue channels. 

Now, if these revenue gains were most probably cancelled out by enhanced spending towards FCI dues, it raises questions about other areas of expenditure were spending was lagging the annual target. 

According to data with the Controller General of Accounts, ten ministries and departments, which had the highest expenditure backlog, were supposed to spend Rs 1.66 trillion to stick to targets in the revised estimates. 

The Ministry of Railways had the highest backlog, and needed to spend Rs 75,000 crore in March alone, to meet RE targets. Capex on defence was short by Rs 20,000 crore till February, to be made good in March. 

The extent to which this backlog will get fulfilled depends upon how strongly did the government follow its borrowing plan presented in the Budget.

Government borrowing is from two main channels, one, directly from the market, and, two, from securities drawn against the National Small Savings Fund. 

Available data shows that the government borrowed Rs 12.95 trillion from the market in FY21, more than Rs 12.8 trillion, which was the revised estimate. This was more than RE, and would thus assist in better spending. 

Securities against small savings were pegged at Rs 1.48 trillion till February, against the annual plan of Rs 4.8 trillion. Whether or not the government borrowed the remainder in March is still unknown.