An increase in government expenditure, and a small cut in income taxes: these are among the key expectations of economists from Finance Minister Nirmala Sitharaman as she presents the final Union Budget for 2024-25 on July 23.Aditi Nayar, Chief Economist at ICRA, and Anubhuti Sahay, Head of India Economic Research at Standard Chartered Bank discussed their expectations on government’s revenues and expenditure from the Budget with CNBC-TV18.Despite the potential expenditure and tax cut, they expect the government to be able to stick to the fiscal deficit target at around 5.1%.
This is the verbatim transcript of the interview. Q: Can you first take me through how much may a government’s revenues increase and why, your numbers?Nayar: The RBI dividend, we have all dissected quite a lot over the last few weeks. We know that it’s about one trillion higher than what was put into the interim budget. And on the tax side, broadly what we’re looking at is that the gross-tax revenues could be around ₹40,000-50,000 crore higher than what was budgeted. Last year’s provisional number also ended up being higher than the revised estimate (RE). So, the embedded target now is at or below what we expect nominal GDP growth to be. So there is a little bit of scope over there to increase the gross tax revenue number.And of course, a part of that will go to the state government so we are conservatively estimating that ₹20,000 crore extra would be left over to Government of India after setting aside the devolution. So ₹1.2 trillion is the number that we are working with as the revenue upside.Q: Anubhuti, what are you assuming? How much more revenues than what was forecast in the interim budget?Sahay: So I think Aditi has covered it really well. So we do have an estimate of ₹1.2 lakh crore of excess dividend flow coming from the RBI. On top of it, we are a little conservative when it comes to excess tax collection at this point in time. So we are just looking at around ₹10 to ₹15K of excess tax collection. We have to take into account of the shortfalls from other non-tax sources, and especially from the divestment proceeds.So in our view, while there is an excess of around ₹1.4 lakh crore taking tax plus the dividend inflow, we will have to take into account a shortfall of at least ₹20,000 crore from divestment proceeds. Plus, there is also a possibility of a ₹30,000 crore of shortfall coming from the telecom proceeds. The number has been pegged pretty high. So net-net, if we look at it, I think ₹1 lakh crore of excess on the revenue side is something which we can work around comfortably going forward.Q: Would you want to defer because April-May tax collections have been very good. Income tax up by 41.6%, as you point out. Of course, corporate tax is taking away the thunder. It’s minus 20%. But then you also have some good numbers coming in from CGST. It’s a good 12.2% higher. So what can you reasonably expect? Can the government assume a much higher GTR, gross tax revenue? Nayar: There isn’t a huge amount of difference between what Anubhuti is saying and what I am saying. If they really look at the absolute numbers, one of the things that we do need to keep in mind is that in many sectors, the activity did have a temporary slowdown in the month of May in particular while the elections were on. So there will be some impact on the tax collections in a transient manner in the next couple of months as well. So I think looking at a gross tax surplus of about ₹40,000 crore over what was included in the entire budget, that’s kind of a reasonable number.If activity picks up very well in the second half of the year, if the monsoon is great and rural consumption really kind of comes back with a bang then there would be a scope for this number to be overshot at the end of the year. But I think at this point in time, it may not be very prudent to assume that taxes will overshoot the interim budget estimate by a higher margin.Read Here | Here’s a forthright submission ahead of the 2024 Budget: HCG Chairman Dr Ajaikumar Q: You are saying about ₹40,000 crore more than interim budget, it’s not a great deal. And I think that’s what Anubhuti is saying. And if you add the RBI dividend to it, then you are looking at almost ₹1.5 trillion or a little more than that. Will you also deduct what Anubhati is saying, like telecom and divestment may have been overestimated?Nayar: So, firstly, the tax number that I am seeing is gross of devolution. So what will be left over to the government will be a little more than that. And divestment, the number that they pencilled in isn’t huge. There is, of course, scope that it will be undershot, but I don’t suppose that that number will be changed at this point in time. So we will have to wait and see how the year unfolds. Where we expect the budget numbers to differ from the interim budget are mainly these two sources, tax and the RBI dividend, both of which will be to the upside.Q: So, Anubhati, main expectations? Sahay: So, on a net-net basis, our sense is that we might see expenditure increases and here, I would also include the possibility of tax cut. So, I mean, you are collecting lesser income tax. So, if you put it all together, then our sense is the expenses can go up by around 0.5 to 0.6% of GDP. Here, I am including higher food subsidy bill, which we already know about after the MSP increase announcement came through. The second part would be if the government decides and these are all big if, decides to give some support or increased installment for the farmer loan scheme plus some tax relief for the middle income segment and special assistance for state governments, like of Andhra Pradesh and Bihar so we all put it together, we can see an additional spend of around 0.5 to 0.6% of GDP.Having said that, as we already discussed, there will be extra revenue generation, plus the government has left a decent amount, I think around 0.25% of GDP worth of capex unallocated to schemes. So maybe all these buffers can be used to offset any increase in expenditure. And to that extent, our sense is that the government will stick to the 5.1% target, at least as of now, and maybe throw in a positive surprise at a later date.Q: I spoke to some of the tax experts earlier in one of these run-up-to-the-budget interviews, and they said – Mr. Dinesh Kanabar, CEO of Dhruva Advisors LLP, that if you increase the income tax limit by₹1 lakh, then the total loss for the government is only about ₹13,800 crores, doesn’t seem like a great deal if even that kind of a giveaway is assumed. And MSP is not unusually high, it’s high only for, I think, sugar and maybe paddy, if I am not mistaken. But for a large part, it doesn’t seem to be unusually high. Your estimate of likely higher expenses, Aditi?Nayar: We are working with, firstly, the assumption that the ₹70,000 crore that was included in capex but left unallocated will basically get allocated, and the capex number will stay at the interim budget estimate level of ₹11.1 trillion. Then after that, the revenue upside that I was talking about earlier broadly, we feel that it can be split equally into higher revenue expenditure and or some amount of tax relief. And the other half should be basically used to lower the fiscal deficit number. So if we, let’s say spend ₹50,000 to 60,000 crore extra on revenue expenditure, either on new or existing schemes, because new schemes take a long time to operationalise. So if you really want to very quickly move towards supporting the rural economy, it will be easier to do that through the existing schemes where the structure is already in place.And then the balance we use to reduce the fiscal deficit to about 4.9% to 5.5% of GDP. And with that, there is some scope then to reduce the borrowings in the second half of the year.Q: So your bet is 5% fiscal deficit, right? Nayar: That’s right.Q: Anubhuti, what’s your best guess of fiscal deficit?Sahay: 5.1%, I think we still need to know the special assistance package size, and that on its own can limit the reduction in the budget itself.Also Read | India’s fiscal deficit reaches 3% of annual budget targets by May 2024