Budget numbers game: How revised estimates allow govt to fix its deficits

Union Budgets are largely judged by the numbers they project for the coming year and by the extent of slippage or improvement over the numbers they had projected earlier for the current year. Thus, the Union Budget to be presented next month would be analysed on the basis of the numbers it projects for 2019-20 and the revised numbers for 2018-19. The revised numbers or the Revised Estimates (RE) will capture the variance over what was projected last February as Budget Estimates or BE for 2018-19. Even though the exercise by Finance Minister Arun Jaitley next month will be to present an Interim Budget, the general commentary after its presentation would be focused mostly on the BE for 2019-20 and the RE for 2018-19.

 
However, the Budgets of the Union government every year also present another set of numbers, called Actuals and these pertain to the financial year previous to the one when the Budget is presented. For instance, the Actuals for 2017-18 would be available in February 2019 in the same document along with the BE and RE for 2018-19 and the BE for 2019-20. So focused will be the commentary on the RE numbers for the current year and the BE numbers for the next year that the Actuals for the last year will be simply ignored. This is a mistake and ignoring the Actuals of the last year and not examining their variance from the original BE and RE numbers can weaken the quality of Budget analysis.

 
The numbers for Actuals escape proper scrutiny because they are released in a comparable format only after a year has gone by. And the urgency and priority of focusing on the current year and the coming year are so much more pressing that public finance analysis in India takes a hit. An analysis of the likely Actuals for 2017-18, gleaned from the numbers made available by the Controller General of Accounts (CGA), reveals a few interesting trends on how the Narendra Modi government managed its revenues and expenditure last year.
 

The startling revelation is not in the fiscal deficit or revenue deficit numbers. The government’s fiscal deficit for 2017-18 has been maintained at 3.5 per cent of gross domestic product or GDP under both the RE and Actuals, just as the revenue deficit too has been kept at 2.6 per cent of GDP under both the estimates. However, sharp variations are noticeable in respect of revenue and expenditure, with revenue showing a shortfall, which has been made good by a cut in expenditure. 

 
Tax revenue for the Centre in the RE for 2017-18 was estimated at Rs 12.69 trillion, about 15 per cent more than the Actuals for 2016-17. But the CGA numbers show that the Actuals for 2017-18 would be lower at Rs 12.43 trillion, about Rs 26,800 crore less than the RE. In other words, the Actuals for the Centre’s tax revenue in 2017-18 would grow at a lower rate of 13 per cent over the Actuals for 2016-17.
 
The variations are wider for non-tax revenue. The latest actual CGA number for non-tax revenue in 2017-18 at Rs 1.92 trillion shows a decline of Rs 43,450 crore or 18 per cent from the RE numbers for last year. When Mr Jaitley presented the Budget last February, non-tax revenue according to RE 2017-18 was shown to have already declined by 13 per cent to Rs 2.35 trillion, compared to the Actuals of 2016-17. Now, this decline on the basis of Actuals of both the years seems to be steeper at almost 29 per cent. This reflects poorly on the government’s revenue from dividends and profits from the central public sector undertakings, interest receipt and fees from a host of government services including telecom spectrum.

 
Since the recovery of loans under capital receipts also declined, though marginally, the overall revenue for 2017-18 (excluding borrowings) according to Actuals would thus be less by Rs 71,900 crore over the RE of Rs 16.23 trillion for the same year.
 
If the government still managed to keep its fiscal and revenue deficits at the numbers given in the RE, it is because its expenditure according to Actuals in 2017-18 appears to have been squeezed by Rs 75,000 crore over Rs 22.18 trillion projected in the RE for the same year – by Rs 65,000 crore under revenue expenditure and by Rs 10,000 crore under capital expenditure.

 
Three questions arise. Why did finance ministry mandarins go off the mark on their final revenue collections by such a margin? On February 1, 2018, they gave a certain figure for the government’s non-debt revenue receipts. By the time the accounts are closed for the year, the final revenue receipts show a fall of almost eight per cent. Doesn’t this make a mockery of the RE numbers presented to Parliament?
 
The second question pertains to the downward revision in the expenditure estimates. In just about two months, the finance ministry manages a three per cent squeeze on the RE figure. The poor absorptive capacity of central ministries may have helped, but a drop in capital expenditure is disturbing. The 2017-18 RE number for capital expenditure itself showed a drop of 4 per cent over Rs 2.85 trillion of Actuals in 2016-17. Now, it seems with the Actuals capital expenditure at Rs 2.64 trillion in 2017-18, the decline would be steeper at over seven per cent.

 
The advancing of the Budget presentation date two years ago was believed to have led to the speeding up of expenditure right from the beginning of the financial year. But it now seems the government may have started spending the money from April, but the current procedures still allow the government to cut expenditure of about Rs 70,000 crore in just about two months.
 
Finally, if the RE numbers for 2017-18 can be changed significantly when the Actuals are released, how seriously should one take the RE numbers that the interim Budget presents on February 1? The relative lack of sanctity about the RE numbers may encourage the government to easily show the revenue numbers to be buoyant enough to help it meet its fiscal deficit numbers for 2018-19. If those RE revenue numbers are not met later, the government could always fall back on cutting down on its expenditure. In short, the RE numbers seem to provide a cushion to the finance ministry for managing its deficit numbers the way it likes.