The past few days have brought more bad news. For instance, automobile sales fell in June for the eighth straight month, adding to the pile of evidence that India’s economy is in a slump. As finance minister Nirmala Sitharaman prepares to present her first budget in Parliament on Friday, calls have grown louder for a growth revival on the back of a fiscal stimulus, imparted by either tax cuts or extra state spending. In any case, extra outlays have to be made for the government’s development goals, social sector agenda and farm distress alleviation plans. But the question is: Where will the money come from? The government’s goods and services tax revenue fell below ₹1 trillion in June, underlining how difficult it would be to meet its indirect tax collection targets set out in the interim budget. Could direct taxes make up for the shortfalls? Unlikely, given that income and corporate tax payers expect relief, not a heavier burden. Imposing an inheritance tax could rake in large sums on paper, but might be hard to implement in reality, since taxing wealth is riddled with complexity.
One option would be to abandon the project of fiscal consolidation, letting the gap between government revenues and expenditure widen still further. But doing so could have serious side effects. Much of India’s budget deficit is financed through domestic market borrowings, so a bigger fiscal deficit would result in an enhanced supply of government bonds, which would likely push up yields across the debt market. This would put upward pressure on the cost of capital borne by private businesses and, thus, act against the central bank’s efforts to boost credit and spur investment. This problem is compounded by the trend of state-owned units taking on off-budget debt, backed by the Centre.
If large amounts are to be allocated to various government programmes, the best way to fund them without threatening the fisc would be to liquidate high-value state assets. Disinvestment done in mission mode could hold the key to such an exercise. In the interim budget, the government set a target of raising ₹90,000 crore by selling equity in public sector enterprises. The target could be far more ambitious. Also, it must go beyond the optics of having one state-owned company buy the shares of another. The government needs to cede control of several firms that it runs, lest they continue to drain national resources. Sale offers with strings attached, as seen earlier in Air India’s case, are avoidable. Loss-makers should be offloaded first, but there are various other public sector businesses that would add more value to the economy in private hands. The government may also find plenty of value waiting to be unlocked in other assets that escape attention: Prime land in big cities, for example. There are vast tracts held by government wings, such as the armed forces or railways, in metropolitan areas that developers might be willing to bid big bucks for. Army cantonments in boom cities could be relocated to the outskirts, perhaps, thus maintaining their distance from all the civilian hustle- bustle, as originally envisaged when they were set up. There is plenty of commercial value to be extracted from much else that the government is sitting on. It’s a tough task, arriving at a delicate balance of finances that would achieve specific aims without unintended consequences. Thankfully, the means exist.