In the run-up to the annual budget on 5 July, India’s finance minister Nirmala Sitharaman faced three main deman-ds from Indian industry and analysts.

First, loosen the fiscal purse strings to boost growth and arrest the domestic slowdown. Second, make public borrowings and deficit figures transparent to make the fiscal math more credible. Third, announce big-bang reforms to revive the animal spirits of Indian industry. On all three counts, Sitharaman has disappointed, an analysis of the budget speech and the budget numbers show. Sitharaman has not given in to calls for a fiscal stimulus and has also shied away from including off-budget liabilities in budget calculations. There were policy changes relating to the capital markets, but no new industrial policy or labour reforms were announced. Overall, the budget seems to signal status quo on most issues, at least for now.

As earlier, the nature of government spending continues to be geared towards meeting revenue expenditure rather than raising capex.

While the announced fiscal deficit number (revised estimate) for fiscal 2019 turned out lower than expected at 3.4% of India’s gross domestic product (GDP), this is an underestimate for two reasons. First, the revised estimates report higher tax revenues than what the Controller General of Accounts (CGA) has reported for the same fiscal, suggesting that the actual revenues will be lower and the deficit (excess of spending over revenue) higher, when they are published in the next budget. Second, the inclusion of off-budget financing (including government-serviced loans of public sector enterprises) would mean that the adjusted fiscal deficit number is close to 5% of GDP.

This is even without accounting for recapitalization bonds (earlier funds for recapitalization of banks were included in the budget but since the issuance of recapitalization bonds, only the interest payments are included).

The growing size of off-balance sheet borrowings is Sitharaman’s inheritance rather than her creation. However, Sitharaman seems to have preferred status quo over a clean-up act. As a result, the projections for the next fiscal appear as unrealistic as they did earlier when the interim budget was presented.

This also means that India’s public debt figure is unlikely to decline soon.

The projections for revenue growth appear particularly stretched given the drop in both direct and indirect tax revenue growth reported by the CGA.


The contents of Sitharaman’s budget speech had several similarities with those of her predecessor, Arun Jaitley (see chart 5).

However, Sitharaman, an economist by training, used economic terms much less than her predecessor did, data shows. Words such as “digital" and “startup" were more frequently cited by Sitharaman. Jaitley referred to “development" relatively more than Sitharaman did, while Sitharaman referred to women or gender-related terms much more than Jaitley or any other finance minister before her, at least in the post-liberalization era.The nature of spending in Sitharaman’s budget remains broadly unchanged compared to the Jaitley era.

A ministry-wise analysis suggests that agriculture, renewables, and labour are the top three gainers, with their budget allocations in fiscal 2020 significantly higher than in the past five years. The ministries of planning, heavy industries, and panchayati raj are among the biggest losers (see chart 7).

The sharp rise in allocation for agriculture is partly because of the Pradhan Mantri Kisan Samman Nidhi scheme worth 75,000 crore, announced in the interim budget itself. The rise over the previous five-year average is also on account of the interest subsidy for short term credit to farmers, which was included under the department of financial services earlier but has been included under the agriculture head since fiscal 2017.

The share of transfers to states as a proportion of gross tax revenues is projected to fall, but that is largely a denominator effect.

The budgeted gross tax revenue figure is 18% higher than the provisional figure for 2018-19 (derived from CGA reports) and hence leads to an understated ratio of transfers to states as a share of gross tax revenues.The budget of the second full-term government of the National Democratic Alliance (NDA-II) had largely followed the United Progressive Alliance (UPA) template in spending patterns across ministries. That trend continues in NDA-III despite a change of guard at North Block.

Rising rural spending over the past couple of years means that it is above UPA levels now,while that on social infrastructure or human capital is marginally lower compared to the UPA era

Overall, the 2019 budget signals more of continuity than change.


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