Budget 2016: One-time receipts have kept revenue growth steady for years

In the past 10 years, these have hidden rise in public debt as percentage of core revenue

The government has in the past 10 years managed to keep the momentum of revenue growth steady, thanks to one-time gifts each year, shows a piece of data that Finance Minister Arun Jaitley is unlikely to find from his Budget officers.
 
These gifts have hidden the rise in public debt as a percentage of the government’s core revenue. Over the past 10 years, each year, there has been average annual growth of more than 40 per cent in debt measured against tax and what one can call long-term non-tax revenue.

 
Since there is little scope for fresh gifts in 2016-17, the minister can face a very difficult fiscal maths this time.
 
The tendency to use one-off receipts or gifts to cover up low rise in taxes has been a long-standing one with the central government. But it seems to have run its course. So, in 2016-17, unless Jaitley can create something afresh, those gifts will not arrive. At the same time, he faces a much larger demand for higher expenditure. The payouts include those to implement the recommendations of the 7^th Pay Commission and support banks and states in financing the power sector restructuring plan, UDAY.
 
There’s some difficulty he faces. From the annual Budget papers, when one nets out the effect of the one-off receipts, the aggregate receipts of the government fall off dramatically. For instance, in 2015-16, the accretion to debt as percentage of total receipts is nearly 35 per cent. But when one nets out the benefit of the one-time inflow, it climbs to about 38 per cent. In 2014-15, for which the accounts are firmed up and are, therefore, more accurate, the difference is even higher. Minus the one-time flow, it is 43 per cent, even as the Budget papers show those at 36 per cent.
 
In 2011-12, the difference between the stated position and the actual one was even higher. The reality was 57.2 per cent, compared with 44.4 per cent on paper.
 
The differences are, therefore, not the creation of this government alone. Stretching back right up to 2005-06, one can see that the governments of the day used the one-time flows from various sectors to make up for their tax sluggishness. Netting out these inflows, the core earnings of the Union government would be far more conservative.

Year	Tax revenue	Non-tax revenue	Non-debt capital receipts	Of which one-off items		Net non-tax receipts*	Net receipts (tax+net non tax)*
FY05	304958	81193	65656	61565	recoveries frm states including Rs 32,665 crore of securities issued to NSSF
FY06	366151	76813	14056	2356		88513	454664
					disinvestment
FY07	473512	83205	5978.58			89183.58	562695.58
					No disinvestment
FY08	593147	102317	40622.8	36125.4		106814.4	699961.4
					disinvestment including RBI sale of SBI to GOI
FY09	605299	96940	12264.8	2566.51		106638.3	711937.3
					including Rs 899 cr as SUUTI disinvestment
FY10	624528	116275	33194	24581		113734.3	738262.3
					disinvestment
				11153.7
					interest frm states--13th FC debt consolidation
FY11	793071.72	218602.2	35265.59	22846.1		110474.1	903545.84
					disinvestment
				120548
					telecom auction
FY12	889176.36	121672.3	36397.95	18087.6		122581.7	1011758.1
					disinvestment
				17400.9
					telecom licence
FY13	1036234.3	137354.4	40949.39	25889.8		133512	1169746.3
					disinvestment
				18902
					telecom
FY14	1138733.7	198869.7	41864.53	29367.9		171252.6	1309986.3
					disinvestment
				40113.8
					telecom auction
FY15	1251391.2	196959	42235.82	31350		164683.1	1416074.3
					disinvestment
				43161.7
					telecom auction
FY16	1449490.6	221732.6	80252.83	69500		189619.8	1639110.4
					disinvestment
				42865.6

Source: GOI budget papers

All figures in Rs crore

*Derived from the tables

 
These flows have given successive finance ministers the assurance that they can borrow more without breaching the fiscal discipline imposed by the Fiscal Responsibility and Budget Management (FRBM) Act. “Without those one-time receipts, the deficits would have been higher. Given slow growth of the economy and the consequent shrinking of the revenue base, the receipts actually helped,” says Pinaki Chakraborty, professor at the National Institute of Public Finance and Policy.
 
What has gone unnoticed is, therefore, the rise in public debt as a percentage of core earnings of the government. It is an insidious weakness eating into the government finances and can blow up very suddenly.

Year	Total receipts (TR)	Accretion to debt	% of Total Receipts	Net receipts*	% of net receipts
FY06	526626			454664
FY07	578869	278451	48.1	562695.6	49.49
FY08	727557	298829	41.07	699961.4	42.7
FY09	883956	322053	36.43	711937.3	45.24
FY10	1024487	356728	34.82	738262.3	48.32
FY11	1197328	422568	35.29	903545.8	46.77
FY12	1304365	578478	44.35	1011758	57.17
FY13	1410372	553340	39.23	1169746	47.3
FY14	1559447	599589	38.45	1309986	45.77
FY15	1681158	608673	36.21	1416074	42.98
FY16	1777477	616137	34.66	1639110	37.59

Source: GOI budget papers
 

*Net Receipts is net of one-off items

All figures in Rs crore

 
Once the rise in debt becomes a problem, its effect could ripple through the economy. At the receiving end of the crowding-out effect are not only companies but will also be the state governments that have recently been allowed larger access to markets, including foreign investors to borrow from. Their interest cost will rise. To keep the debt from roiling the markets, the government has to turn to higher taxation measures or try to roll them over. The numbers are closer to the limits mandated by the FRBM than they appear from a reading of the government Budget documents.
 
Sajjid Chinoy, chief India economist and executive director, JPMorgan, agreed these trends needed to be studied carefully for their impact on the bond markets.
 
Using higher taxation to pay off larger debt or scrounging around for fresh one-time sources worsens public finance even more. Further, there is the factor of higher interest payments as a part of debt servicing. High levels of government debt, therefore, saddle future generations with no offsetting multiplier to gross domestic product from government spending, since the spending has occurred years early, when the debt was issued.