Extraordinary times, ordinary budget

The much-anticipated national budget for fiscal year 2020-21 turns out to be a document trying to run on the momentum. The mentioned four strategic stances involving increased public expenditure, special credit facilities, expansion of safety net and liquidity infusion are very much in the right direction. However, the numbers put up in the fiscal framework are far from the reality. It is a justified apprehension that the core budgetary numbers and ratios may become functionally obsolete within next three to six months. This may also blunt the effectiveness of various useful policy initiatives of the government.

The convention of preparing government's income-expenditure balance based on numbers provided by the Revised Budget has given us a set of inflated benchmarks (2019-20) and unreal target figures for 2020-21. This particularly true for the revenue collection amount which has to be one and a half times more than the actual collection in 2019-20. This suggests that the revealed budget deficit may very well be much more than the projected 6 percent of the GDP, if the full public expenditure outlay has to hold.

The proposed sources of financing of the fiscal deficit is also worrying. About 45 per cent of this deficit will be financed through borrowing from a fragile banking sector and may crowd out the ailing private sector.

The budget needs to be read along with the (incomplete) closing assessment of the Seventh Five Year Plan (2015-20), which shows that tax-GDP ratio is stuck at 2010 level and the public expenditure ratio has improved marginally. But the most miserable situation had been in the area of private investment.

The issue of private investment becomes quite vexing when we note that the medium-term macro-framework mentions that the estimated share of domestic private investment in GDP in the outgoing year is only 12.7 per cent, which will be more than double (25.3 per cent of GDP) in 2020-21! One wonders whether there is an estimation error or this exposes the dire state of private investment. Same concern may be raised regarding the GDP growth projection of 8.2 per cent for the next year.

The pandemic related measures mentioned in the budget speech are essentially an extension of the already existing schemes of the government and have locked-in the stimulus packages announced earlier. Given the existing rigidities in revenue and development expenditure structures, the allocative priorities changed only at the margin. The reform measures reiterated are run of the mill.

I am afraid that the budget has shied away from doing a hard introspection and scoping of the evolving landscape. This has deprived it from identifying innovative sources of finance, imaginative spending programme and taking a "whole of society" approach in dealing with the scourge of COVID19. Regrettably, it ended up being an ordinary budget in an extraordinary time.