Govt's expenditure and revenue figures for H1 don't tell the whole truth

The Union government’s revenue and expenditure numbers for the first half of 2019-20 have now been released. If you look at the broad trend and compare it with what was happening during the same time last year, you may be lulled into believing that things are under control and may have actually got better.
 
The government’s total expenditure has been contained at Rs 13.44 trillion, which is 53.4 per cent of the Budgeted estimate of Rs 27.86 trillion for the full year. You may argue that clocking this rate of expenditure in the first half of the year shows a tight control on government spending. Last year also, during the same period, the government had spent an amount that was again 53.4 per cent of the Budgeted number for 2018-19.

 
The government’s total receipts during April-September 2019 were estimated at Rs 8.37 trillion, about 40 per cent of the Budgeted number of Rs 20.82 trillion. Last year, this figure was slightly lower at 39 per cent.
 

Not surprisingly, therefore, the fiscal deficit at Rs 6.51 trillion represented 92.6 per cent of the full year’s number. Last year, it was much higher at 95.3 per cent.
 
But such signs of an apparent improvement in the government’s fiscal health are quite misleading. Remember that last year, the government’s expenditure was suppressed and reduced by about Rs 1.5 trillion by transferring a part of those liabilities to other public sector entities. It would, therefore, appear that this year also the same exercise may have to be undertaken, since the government’s total expenditure in 2019-20 is set to grow by over 20 per cent to Rs 27.86 trillion, compared to the actual expenditure of Rs 23.11 trillion in 2018-19.

 
What is that expenditure amount, to be transferred to the public sector entities and which will be classified as off-Budget borrowing, is not yet clear. But the expenditure trend so far suggests that there would be a repeat of what happened last year.
 
The second area of concern is on account of the six-monthly trend in the government’s expenditure on major subsidies. The government had budgeted an expenditure of Rs 3 trillion for the entire year of 2019-20 on major subsidies on food, fertilisers including urea and petroleum. But during the first half of the current financial year, it has already spent 70 per cent or Rs 2.11 trillion. Last year, during the same period, the government had spent a lower amount of Rs 1.88 trillion, but its share in the Budget estimate was 71 per cent.

 
The bulk of the expenditure compression, leading to transfer of the government’s liabilities to a clutch of public sector undertakings, took place under the head of major subsidies. Since 70 per cent of the Budgeted subsidies amount has already been spent, it is only a matter of a few more weeks before the government starts loading the excess burden on the public sector undertakings like Food Corporation of India and the petroleum companies. This is likely because so far there is no indication that the government is planning to clean up its accounts and show all the extra-Budget borrowings as part of the government’s borrowing on its own account to reflect the correct level of fiscal deficit.

 
The third area of concern arises from the government’s receipts. The healthy rise in the government’s receipts is largely on account of a one-time transfer of the Reserve Bank of India’s surplus of about Rs 58,000 crore. On the disinvestment front, the trend in the first six months has not been encouraging. Just about Rs 12,400 crore has been received in April-September 2019, against a Budgeted target of Rs 1.05 trillion of receipts from disinvestment of the government’s equity in public sector undertakings. Meeting that target will require a lot more effort in successfully selling Air India and BPCL.

 
On the taxation front, the gross tax revenues growth in the first six months of 2019-20 has declined to just 1.43 per cent to Rs 9.19 trillion. In the first five months of the year, the growth rate was still higher at 4.25 per cent. Corporation tax growth in April-September too has slowed to 2 per cent, compared to almost 5 per cent in the April-August period. Similar deceleration has been noticed in the collection of personal income-tax and customs duty.
 
It, therefore, seems that the government’s numbers on expenditure and receipts in the first half of the current year do not fully reveal the stress in its finances. Less than three months later, the government will be presenting the Budget for 2020-21. It has a few more weeks before it can make up its mind on whether to transparently recognise the stress in its finances or continue to present a headline deficit number that does not fully reveal the true picture.