OPINION | Budget Arithmetic For 2019-20 Reveals The Potential Concerns On Fiscal Federalism

These two are different types of figures for the financial year 2018-19 available from two different sources, viz. Revised Estimates (RE) for 2018-19 provided in the Union Budget documents (both the Interim Budget and the Main Budget documents provide the RE figures for the last fiscal, which of course are the same) and the provisional actuals (i.e. unaudited actuals) for 2018-19 provided by the office of Controller General of Accounts (CGA) of the Union Ministry of Finance.

The Interim Budget and now the main Union Budget for 2019-20 have put the RE for Centre’s Net Tax Revenue in 2018-19 at Rs. 14.84 lakh crore, but CGA’s provisional actuals for the same for 2018-19 is 11 per cent lower at Rs. 13.17 lakh crore.

This shortfall is bound to have affected the government’s expenditure commitments as well. Compared to the RE figure for total Union Government expenditure (on all sectors) in 2018-19 at Rs. 24.57 lakh crore, CGA’s provisional actuals puts this figure for 2018-19 at Rs. 23.11 lakh crore.

CGA does not publish the disaggregation of the overall provisional actuals, for which we will have to wait for the audited actuals of 2018-19 to be presented next year in Union Budget 2020-21. Nonetheless, the limited details provided by the CGA indicate that the impact of this shortfall in actual expenditure in 2018-19 is most likely to have been on the expenditure towards Food Subsidy (i.e. implementation of the National Food Security Act).

The RE for Food Subsidy by the Union Government in 2018-19 stands at Rs. 1.71 lakh crore, significantly higher than the actual expenditure on the same in 2017-18 (Rs. 1.003 lakh crore); but the CGA’s provisional actuals for Food Subsidy in 2018-19, at Rs. 1.02 lakh crore, is 40 per cent short of the RE figure for the last fiscal.

The Budget Estimates (BE) for Centre’s Net Tax Revenue in 2019-20 was projected at Rs. 17.05 lakh crore in the Interim Budget in February this year; the BE for the current fiscal for this figure has been brought down to Rs. 16.49 lakh crore in the main Budget now. But the experience of 2018-19 would suggest that even this slightly reduced projection for the Net Tax Revenue of the Centre could also be too optimistic. A shortfall in tax revenue collection in the current fiscal would consequently impact the government’s expenditure commitments for 2019-20.

This apprehension seems to have deterred the Finance Ministry from increasing the projected level of total Union Government expenditure in 2019-20 beyond what was already projected in the Interim Budget in February. The total Union Government spending as per the main Budget for 2019-20 is pegged at Rs. 27.86 lakh crore, which is only marginally higher than the Rs. 27.84 lakh crore projected in the Interim Budget. But the aggregate expenditure figure conceals a small reprioritization that has been carried out with the main Budget, over the Interim Budget, for 2019-20.

The main Budget for 2019-20 has provided slightly higher magnitudes of allocations, compared to those provided in the Interim Budget for this year, for a number of social sectors, e.g. Agriculture and Allied Activities (Rs. 1.51 lakh crore, with an increase of nearly Rs. 1500 crore), Rural Development (Rs. 1.4 lakh crore, with a rise of Rs. 1700 crore), Education (Rs. 94854 crore, with an increase of around Rs. 1000 crore), Health (Rs. 64999 crore, with an increase of roughly Rs. 1500 crore), and Social Welfare (Rs. 50850 crore, up by Rs. 1500 crore roughly).

These small increases in allocations across a range of sectors, however, seem to have come at the cost of a reduction in the total quantum of Finance Commission recommended Grants to States and UTs, which shows a decline from Rs. 1.32 lakh crore in the Interim Budget for 2019-20 to Rs. 1.20 lakh crore in the main Budget for 2019-20.

This could be the precursor to a debate that could unfold with the recommendations of the 15th Finance Commission (expected by end of October this year), in case the Centre-State resource sharing arrangements of the 14th FC are changed in favour of boosting Centre’s fiscal space at the cost of a reduction in the proportion of untied funds within total funds transferred to States.

A bigger concern pertaining to fiscal federalism in the country lies on the taxation side of the Union Budget. The divisible pool of central taxes, i.e. the kitty from which 42 per cent is being devolved to States every year during the 14th FC period (2015-16 to 2019-20), is calculated by deducting or excluding from the Gross Central Taxes – (i) proceeds from all kinds of cess and surcharge, (ii) taxes collected from UTs, and (iii) an amount equivalent to cost of tax collection by the Centre.

With a visible increase in the overall quantum of funds mobilized from cesses and surcharges levied on central taxes, the share of Centre’s Net Tax Revenue in the Gross Central Taxes has gone up from 64.7 per cent in 2017-18 to 67 per cent in the BE for 2019-20, a development that many State Governments would not appreciate much. The tension in the country’s fiscal federalism could get escalated further with the 15th FC’s recommendations if it introduces a major deviation from the 14th FC set up.

(The author works for the Centre for Budget and Governance Accountability (CBGA).? Views are personal.)