Arun Jaitley says economic growth likely to be higher in FY18 and demonetisation impact is temporary, which means there's no need for a big stimulus
The budget numbers show that total receipts and expenditure are forecast to increase 6.6% in FY18, compared to a rise of 12.5% in FY17. Simply put, the government doesn’t expect much of an increase in its receipts, which is why it has perhaps been forced to limit the rise in its expenditure as well.
Gross tax revenue is estimated to grow 12.2% in FY18, a far cry from the 17% growth notched up in the current fiscal. It’s a wee bit higher than the 11.75% rise in nominal gross domestic product (GDP) assumed by the budget. One big reason is the lack of traction in excise collections—the huge bounce of 34.5% in excise duties this fiscal year, due to higher duties on petrol and diesel, will not be replicated next year, so the rise in excise duties is expected to be a mere 5% in FY18. Higher customs receipts, probably from high oil prices, should compensate to an extent. Growth in corporate tax receipts is estimated to be the same as in the current year, while growth in income tax receipts is pegged at 24.9% against this year’s 22.8%, possibly because of the wider tax base consequent upon the crackdown on unaccounted income.
Rather surprisingly, growth in service tax is pegged at a slower pace, which is likely to be revised upwards once the Goods and Services Tax is introduced.
Non-tax revenues are projected to be lower than in the current fiscal. The finance minister has a high disinvestment target, which buoys growth in capital receipts.
What of the expenditure side? The first thing to notice is that total capital expenditure is slated to go up by a sedate 10.7%, not very different from the 10.6% increase expected this year.
What about the much-touted rural push? Expenditure on rural development is projected to go up by 11.8% in FY18, compared to a 27.4% rise in the current fiscal year. Growth in allocation to urban development has been pruned from this year’s huge 87.5% to a mere 7.4% for FY18. The budget for education goes up 8.3%, against 9.5% in FY17. Food subsidies are projected to rise by 7.5% next fiscal, against a fall this year.
Note that growth in some of these items is less than the growth of 11.75% assumed in nominal GDP for FY18 in the budget. Expenditure on health, though, is projected to rise substantially, as are the allocations to roads and railways.
So how much of a stimulus does the budget provide? The fiscal deficit is the measure of that stimulus. At Rs546,532 crore, the deficit is projected to increase by Rs12,258 crore over this year’s revised estimates—that is the increase in stimulus projected in FY18 over the current year. That is a very modest increase and is in sync with the finance minister’s statement that growth is likely to be higher in FY18 and the impact of demonetisation is temporary, which means there’s no need for a big stimulus.
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