Shadow of FY20 budget's unfinished tasks on FY21 budget

Finance Minister Nirmala Sitharaman, who will attain the distinction of presenting two budgets in less than a year, will be in focus in February as how she steers the economy out of one of the most challenging times.

She has not seen the best of the times on the growth side since she assumed office at North Block in June 2019.

Here is a synopsis of performance of different departments and the Finance Minister's team members for the 2020-21 budget.

DIPAM: The Department of Investment and Public Asset Management has been far from the target. Despite seeing the secretary-level changes twice, the gap between the goal and the reality has remained large.

After two years of surpassing targets, it is likely to miss the goalpost by a wide margin with only Rs 18,022 crore in its kitty, so far. The delay in privatisation of Air India, BPCL and Concor could be attributed to that. But Tuhin Kant Pandey, who joined the DIPAM in October, is certainly not to be blamed.

Department of Financial Services: The Reserve Bank of India and the government are not on the same page over the banking sector NPAs. While the RBI said the lenders' dud assets |might grow to 9.9 per cent by September, Finance Secretary Rajeev Kumar said the NPAs were on a downward journey.

In case of NBFCs liquidity, the RBI, the PSBs and the DFS are striving to revive rural demand and consumption through lending by shadow banks. However, without any luck.

Also, banks' credit growth slowed to 7.2 per cent to Rs 86.73 lakh crore this November from 13.8 per cent rise to Rs 80.93 lakh crore in the year-ago month, according to the RBI.

Loans to industry growth declined to 2.4 per cent to Rs 27.72 lakh crore in November from 4 per cent in the same month of 2018. During the month, credit to agriculture and allied activities and services sector decelerated sharply.

Kumar, who retires after the budget, will have to see that the credit expansion doesn't slow further.

Expenditure Department: Due to the fragile financial situation, the Finance Ministry last month capped expenditures for the last quarter of FY20 under a revised criteria of 3-8 per cent reduction from the existing figures and directed all the departments and ministries to stay within the restricted budgeted expenditures.

New Expenditure Secretary T.V. Somnathan is using his experience to control a situation where revenues are not rising but expenditure is. The fiscal deficit hitting 115 per cent of the budget estimate till November must have set alarm bells as the possibility of a major rise in tax revenues or disinvestment proceeds is nearly zero.

Add to it the the Rs 1.45 lakh crore impact of lowering of tax rate for corporates on the revenue mobilisation. More borrowing is not an option either.

Of the total revenue expenditure, Rs 3,41,812 crore is on account of interest payments and Rs 2,35,015 crore on account of major subsidies that couldn't be tinkered with. Income support to farmers and food subsidy bills have taken a big hit in terms of revenue expenditure, something Somnathan would not touch.

Department of Revenue: It faces common expectation of cut in personal income tax even as the revenue growth remains muted. The corporate tax rate reduction to 22 per cent from 30 per cent, and to 15 per cent from 25 per cent for new manufacturing entities, has only increased the common man's expectation from the budget.

As on November 30, the gap between expenditure and revenue was at Rs 8.07 lakh crore, while the target is at Rs 7.03 lakh crore, with an aim to restrict the deficit at 3.3 per cent of the GDP. Any shortfalls in GST collections and direct tax revenues are purely undesirable.

But it's not in Revenue Secretary Ajay Pandey's hands.

With a persisting slowdown and lack of industrial activity, both GST and direct tax revenues are expected to be below targets. In the July budget, the government had set a lofty tax target despite a shortfall last year.

The estimate for gross tax revenue for 2019-20 was revised to Rs 24.6 lakh crore from 25.5 lakh crore, announced in the interim budget in February. It was an 18 per cent rise over the tax collected in 2018-19.

At the aggregate level, the Centre's gross tax revenues have grown by only 0.81 per cent in the first eight months (April to November) of FY20 and the corporate tax collection has contracted to 0.91 per cent against the targeted 15.4 per cent.

The central GST mop-up at the end of December would stand at Rs 3.72 lakh crore, against the full-year target of Rs 5.26 lakh crore. Tech-savvy Pandey may go for some out of the box processes to keep tax revenues coming, albeit slowly, this year and the next budget target.

Department of Economic Affairs: It has been in the centre of budget activities for years, though its expenditure counterpart in North Block is equally important. But when it comes to sharing the blame for fiscal deficit slips, non-tax revenues blips (disinvestment proceeds, dividends from PSUs), the DEA stands alone.

Till November, the fiscal deficit stood at 115 per cent whereas the annual target is 3.3 per cent. The hopes are high but unrealistic.

Tax revenues are unlikely to gather pace as the economy enters the fourth quarter with no spectrum auction proceeds, sizeable divestment funds, but with expenses on subsidies, interest payments, salaries consuming a major chunk of revenue, the DEA is not to be blamed if it relaxes fiscal deficit target for pushing 4.5 per cent GDP growth of the second quarter.

Atanu Chakraborty is always optimistic. But that may not be enough with global rating agencies lowering India's growth prospects. Even RBI has lowered the economic expansion print.

Chief Economic Advisor: In the last Economic Survey, CEA and former ISB professor Krishnamurthy Subramanian had said investment was key to the $5 trillion economy target. The economy, so far, has grown at 4.5 per cent. To achieve the $5 trillion goal, the minimum required growth rate should be 8 per cent.

Thus, Subramanian needs to come up with a new narrative, but based on the Indian economy's reality and be supported with viable and practical ways. Or else, if wishes are dreams then...