Centre under financial pressure
If the Union government’s direct tax collection showed a 24 percent jump and indirect tax by 30 percent in just first four months of the current fiscal, which normally represents the lean season of the economy, the national exchequer should be more than pleased. The huge jump in tax collection coupled with the government’s continuous push for higher non-tax revenues should have made the management of public finances extremely comfortable.
In addition, the government provided a very rosy picture of unearthing large domestic black money through an attractive “voluntary disclosure” scheme valid till September 30 under which it will have an additional 45 percent tax collected on “disclosed” assets, thereto held “unaccounted” by our good citizens. However, the scheme result fell much short of the government expectation. The income declaration scheme 2016 unearthed only a gross of Rs. 65,250 crore of undisclosed income and assets, filed under 64,275 declarations till the midnight of September 30, making it just a little over a crore per declaration. Even then, the Centre will collect an additional tax of nearly Rs. 30,000 crore on the amount of “concealed wealth” voluntarily declared.
Simultaneously, several other schemes are under implementation by the finance ministry to raise large non-tax revenues during the next six months. All these should indicate that the Centre should be flush with funds, this year. Unfortunately, it is not. The government, on the contrary, seems to be quite hard up for money. Expenditure has far exceeded the income.
In the first five months of the current financial year, the Centre’s fiscal deficit surged to a record level of over Rs. 4,00,000 crore. This is despite a big jump in the Centre’s April-August net tax revenue by nearly Rs. 70,000 crore. Tax and non-tax revenues are still pouring in. The latest spectrum auction that started with the country’s high spending festival season beginning with Durga Puja and Nav Ratri is expected to raise over a mind-boggling Rs. 6,00,000 crore for the government. On October 1, the first day of the mega-auction, it had reportedly fetched Rs. 65,000 crore.
Also, Niti Aayog is strongly pursuing a mega plan to sell or dump as many as 70 public sector enterprises (PSEs) during this year itself, if possible. These enterprises are not earning enough to fend for themselves and pay a dividend to the government. Their combined land asset value at current market prices could be worth several lakh crores of rupees.
The government wants more. In a bizarre decision, the Centre plans to draw from even the free reserves of some of the PSEs knowing fully well that such a measure will weaken those profit making companies and restrict their ability to take loans from banks and financial institutions under the prescribed debt-equity ratio. The subscribed equity capital and free reserves together form the net worth of a company. Lower net worth invariably impacts a company’s external borrowing capacity. Reserves of a company also support its “internal accrual” for modernisation, expansion, and diversification.
Why is the government so desperate to mop up more money and where is all the money going? Are the Pay Commission wage awards eating into the government’s coffer? Rs. 56,000 crore payout made recently towards wage arrears to government employees will not upset the fiscal deficit numbers for the April-August period of the current financial year as plan expenditure will shrink during monsoon, Finance Secretary Ashok Lavasa had said. But, the expenditure had actually expanded.
What is the government spending on? Not in large infrastructure projects or employment-oriented ventures. The NDA government is yet to make any large investment in high-cost infrastructure projects, which it must as early as possible to push the economy on a much higher growth path and provide employment. The government’s “Make in India” programme is mainly attracting low-employment foreign private investment.
Meanwhile, the continuous loss of exports for months have rendered millions jobless in the country. According to the labour ministry’s 27th Quarterly Employment Survey of eight employment-intensive industries such as textiles, leather, metals, automobiles, gems & jewellery, transport, IT/BPO and handloom/power loom, there were 43,000 job losses in the first quarter of FY 2015-2016.
The second quarter was better, with 134,000 new jobs, but even then, the 91,000 net new jobs created in the first half of FY 2015-16 look desultory. At their peak, these sectors had added 1.1 million jobs in 2010. In the following five years, however, 1.5 million jobs were lost. It would appear that the government’s massive income is not being judiciously spent to bolster the growth of the infrastructure and manufacturing sectors to create and sustain employment.
The services sector is expanding while the manufacturing sector is languishing. The services sector is creating mostly low-paid jobs which are also temporary in nature. One reason for low job creation despite a modest 7.5 percent GDP growth is, according to many, that the economic growth is based on the gross value added methodology. The real growth could be just around five percent. And, wherever there is growth, it has been capital intensive to save on the cost of labour.
The 2016-17 budget’s specific provisions to expand productive employment providing a boost to the rural economy and infrastructure seemed to have achieved little so far. Under the circumstances, the massive monthly budget deficits of the government are inexplicable. In last August, the fiscal deficit was Rs. 14,333 crore as against a fiscal surplus of Rs. 15,808 crore in the same month, a year ago. Poor money management and growing non-plan expenditure may be responsible for high budget deficits so far. IPA
(The views expressed are strictly personal.)