Budgetary Document of 2020-21 is merely a piece of worthless paper now. You may disagree but it seems evident for sure. It could be a masterpiece roadmap before pandemic of COVID-19 but post Covid-19, this is no more relevant for current volatility in the Indian economy. The figures of expected revenue, expected expenditure, allocation made to various sectors and most important the projection made for economy are now groaning. Covid-19 has completely put Budget 2020-21 on ventilator.
Let’s start this analysis with most significant part of the Budget i.e Expenditure and Revenue side. The government has already proposed to spend Rs 30,42,230 crore in 2020-21. This was much more than revenue expected. The central government was in expectation that the receipts (other than net borrowings) are expected to increase by 16.3% to Rs 22,45,893 crore this financial year. The major expectation of revenue was from some big disinvestments. The total of revenue receipts stands at ₹20,20,926 crore (₹16,35,909 crore from Tax Revenue and 3,85,016 crore from Non-Tax Revenue).
The government has set the ambitious target of ₹2,10,000 crore from disinvestments. In the previous year, it was just ₹65,000 crore (revised estimate).
Now the question is how will the government manage the revenue shortfall due to Covid-19? Is it practical to expect ₹20,20,926 crore by the way of Tax and Non-Tax Revenue? From last 40 days, the country has been put on blanket lockdown. The fact is production units as well as individuals are worst affected due to pandemic. All the economic activities are on hold except certain essentials. People movement have become standstill. Companies are firing the existing workforce due to economic uncertainty. India is witnessing a huge ‘Reverse Migration’. So, during the lockdown, no one can expect revenue neither from direct sources nor from indirect sources (GST). The major source of revenue is the excise duty on petroleum products which will also face a shock due to lack of demand and consumption.
Currently, it is difficult to predict any exact number of revenue loss. It will all depend on extension of lockdown and normalcy response of the economy. But the first prediction we have is from former finance secretary Subhash Chandra Garg. In a blog, he mentioned that the government is likely to face a revenue shortfall of around ₹10 lakh crore in 2020-21 due to the COVID-19 pandemic. This is nearly 50% of total Budget expectations. Subhash Chandra Garg had two strong backing to such observation. First, the government’s tax and non-tax revenues are likely to decline by around ₹5 lakh crore and second the government will need additional financing of about ₹6 lakh crore.
Now, the government has only few options. Since, it can’t increase tax rates in such a panicking pandemic, definitely it has to put moratorium on huge capital expenditure for one year. It will save some lakh crore and finance the requirements. The other option is deficit financing, but it may become more disastrous. The deficit numbers are already not in favour of Indian economy. Additional deficit will create another long term economic shock.
The government must be more careful while coping with the upcoming uncertainty. After this health emergency there will be an economic emergency. It all depends on how we are preparing today. It’s evident that we are doing well in saving lives of our people from a deadly virus, at the same time we must perform better to save our people from upcoming invisible financial shock.
(Writer is a student of FOC, BHU and Founder and President of Finance and Economics Think Council)