Budget 2021: We Spent, Spent, Spent, Says Nirmala Sitharaman. Did They?

Budget documents tabled in Parliament after Finance Minister Nirmala Sitharaman's budget speech show three things—the Indian government did spend in 2020-21, it spent partly to clear past dues and clean up budget accounting, and that it's giving itself a fiscal long rope over the next few years.

Growth over fiscal consolidation. Just the way the markets wanted it.

This is what the first cut on the budget math looks like.

Nominal GDP Growth Reasonable

The nominal GDP growth for FY22 is pegged at 14.4%, according to the budget documents. This is marginally lower than the 15.4% projected in the Economic Survey.

Expenditure Surged In FY22, But....

The most interesting part of the budget are the expenditure numbers.

The total expenditure in FY21 stood at Rs 34.5 lakh crore compared with the budgeted Rs 30.42 lakh crore. What happens in FY22? The total spending rises marginally by 1% to Rs 34.83 lakh crore.

As a percentage of GDP, total expenditure rose to 17.7% of GDP in FY21. It drops to a projected 15.6% in FY22.

But. And there is a big ‘but’ here. A material part of the increased spending in FY21 was on account of clearing fertiliser subsidy arrears and bringing the dues of Food Corporation of India on budget versus the pervious off-budget accounting.

The one-off expense also partly explains why the year-on-year expenditure increase is low at just 1%. If you exclude that one-time spend, the non-interest, non-subsidy spending is set to rise 9% year-on-year.

Expenditure Shift Towards Capital Spending

The other interesting aspect of government expenditure is that there will be a shift in the balance between revenue expenditure and capital expenditure.

Revenue expenditure will be at 84.1% of total spend in FY22 compared with 87% last year. Capital expenditure will be at 15.9% of overall spending next fiscal year compared to 13% last year.

Gross Tax Revenue Not Out-Of-Line

Moving to the revenue side, gross tax revenue is expected to rise 16.7% in FY22 over the revised estimates of FY21. Pranjul Bhandari, chief India economist at HSBC, says that the tax estimates are conservative both for FY21 and for FY22. They have assumed a tax buoyancy of 1.2 in FY22, which could be higher due to greater formalisation, Bhandari said.

Non-tax revenue, with a divestment target of Rs 1.75 lakh crore, is projected to rise 15.7% in FY22 over the revised estimates of FY21.

Fiscal Deficit Remains High, Borrowing Pressure Will Continue

The budget math means that the fiscal deficit for FY22 will be at 6.8% in FY22 compared with 9.5% in FY21.

In absolute terms, next fiscal year’s fiscal deficit will be at Rs 15.07 lakh crore. The gross market borrowing is estimated at Rs 12 lakh crore.

The reliance on the National Small Savings Fund remains high. In FY21, the government ended up borrowing Rs 4.8 lakh crore from the NSSF. Next year, too, it will borrow a relatively high Rs 3.9 lakh crore.

Equally notable is the fiscal glide path from here on. The Finance Commission recommends that we get to a 4% fiscal deficit by FY26. The finance minister, in her budget speech, said they will target a 4.5% fiscal deficit by FY26. The consolidated liabilities-to-GDP ratio is targeted at 85.7% by FY26.

Key point: Expect government borrowing pressure to persist.