- Overestimating tax revenue and budgetary outlay
There was always some discrepancy between budget estimates (BE), revised estimates (RE) and actuals (A) over the years—as is to be expected—but such differences were relatively minor. Over the last few years, the Modi Government has indulged in dressing up of the budget figures, because of which these differences have become so vast that the budget estimates tell us nothing about what will actually be received or spent by the government; implying that the budget figures have become irrelevant. We only get to know what has actually happened after 2 years—that is, when the budget actuals are released.
Table 1: Government Revenues, 2021–22 and 2020–21 Budgets (Rs cr)
|2020–21 BE (2)||2020–21 RE (3)||2021–22 BE (4)||2 – 1, %||4 – 3, %|
|Tax revenues (Net to Centre)||15,04,587||16,35,909||13,44,501||15,45,397||8.7%||15%|
|Total receipts – Borrowings||19,31,706||22,45,893||16,01,651||19,76,424||16.3%||24%|
Thus, in this year’s budget papers, the government has estimated an increase in tax revenues (net to centre) for 2021–22 over 2020–21 RE of 15%—which is actually quite high, even higher than its estimate of rise in GDP; and increase in total receipts (minus borrowings) for 2021–22 over 2020–21 RE of 24%. Both these figures are very high, as compared to the projections last year (2020–21 BE over 2019–20 RE)—which were 8.7% and 16.3% resp.
Clearly, the budgetary outlay projections in this year’s budget are overestimated—and the actuals are going to be much less. The government is taking the Parliament and the country for a ride!
- Budget 2021 outlay: Fiscal conservatism despite slowdown
With the economy slowing down before the pandemic and then hit hard by the pandemic, the way out was to increase government spending.
Table 2: Budget Outlays, 2018–19 to 2021–22 (Rs cr)
|2018–19 A (1)||2019–20 A (2)||2020–21 BE (3)||2020–21 RE (4)||2021–22 BE (5)||2 – 1
|4 – 3
|5 – 4
This year’s budget papers show that in this financial year (2020–21), during the peak of the pandemic, the government increased its expenditure (that is, 2020–21 RE over 2020–21 BE) by only 13.4%. This is even less than its increase in expenditure for the previous year—2019–20 A over 2018–19 A—which was 16%. And that was a normal year!
At least in this year’s budget, coming at the end of a year of the pandemic, and with the economy in such deep slowdown, the government should have considerably increased its spending. Finance Minister Nirmala Sitharaman in fact claimed that the Budget would be one “like never before”.
But in Budget 2021–22, total expenditure or 2021–22 BE is projected to rise by just 0.95% relative to 2020–21 RE, a shockingly low increase, despite the govt projecting that the GDP should rise by 14.4%. Clearly, the government:
(i) does not believe its projection for GDP! and
(ii) is not really interested in improving the health of the economy.
The reason why the government is keeping budgetary expenditure at such low levels was outlined by the Finance Minister Nirmala Sitharaman while speaking at a function organised by the Bangalore Chamber of Industry and Commerce on February 21. She said that the Union Budget 2021–22 was about the role of government as a facilitator and the private sector as a key driver of economic growth.
The Indian finance minister has become a puppet whose strings are pulled by the WB–IMF. These international financial institutions, which are merely a front for international finance capital, want to strangulate the long term growth prospects of the Indian economy and so they want the government to keep its expenditures low. That creates the conditions for private capital, particularly international capital, to take control of the economy and mould it according to its desires.
- Increasing violation of federal structure
The Centre’s and States’ finances are interlinked. The States are supposed to receive 42% of the ‘Divisible Pool’ of Centre’s tax revenues, defined as total tax revenue of the Centre minus the expenditure incurred for collecting taxes. But there is a loophole in this, which enables the Centre to transfer a lesser portion as taxes, and the Modi Government is blithely exploiting this. The loophole is, that taxes collected by the Centre in the form of cesses and surcharges are not shared with the States
- Divisible Pool of Centre’s revenues = [Gross Tax Revenues of Centre – Cesses and Surcharges – Expenses incurred for collecting taxes]
- States’ Share of Centre’s Tax Revenues = Divisible Pool of Centre’ Revenues x 42%.
The Centre has increasingly been resorting to collecting more and more of its taxes as surcharges and cesses, so that it does not have to transfer a portion of these collections to States. This year, the FM has introduced a new cess called the Agriculture Infrastructure and Development Cess on certain goods. The result of all these cesses and surcharges is that their share in the gross tax revenue of the Centre (excluding the GST compensation cess which is exclusively given to the States) has nearly doubled, from 11.8% in 2015–16 A to 20.3% in this year’s budget estimate (Table 3).
Table 3: Cesses and Surcharges as % of Gross Tax Revenues of Centre, 2015–16 to 2021–22
|2020–21 BE||2021–22 BE|
|Cesses and Surcharges (excl GST Comp Cess) as % of Gross Tax Revenues||11.8||12.7||10.6||15.2||9.8||15.3||20.2|
- Total cesses and surcharges = Rs 4.49 lakh crore
- Total gross tax revenues = 22.17 lakh crore
This means that the States are losing Rs 1.88 lakh crore in revenues this year due to this trick by the government. Total States’ share of Central tax revenues this year is Rs 6.66 lakh crore. This means that the States are going to suffer a loss of 28% in their share of Central tax revenues this year.
Of the total Central transfers to States, around 80% is Central taxes devolved to States, which are untied funds and States can use them as they wish. The remaining is grants-in-aid for schemes and other programmes. So, if the Centre resorts to tricks to reduce the tax transfers to the States, they are pushed into a corner, and have to approach the Centre for special funding. This gives the power to the Centre to play favourites, and penalise those States which oppose it politically—affecting the federal structure of the country. This is precisely what the Modi Government is doing.
During the pandemic …
The lockdown imposed in the name of tackling the corona pandemic triggered a sharp fall in the Centre’s revenues, due to the severe economic contraction. Both the income tax and corporation tax collections suffered a sharp fall. It severely affected GST collections too. Likewise, the revenues of the States too suffered a huge fall. But the major share of the increased expenditures to tackle the corona crisis fell on the States, as they bear the major share of the social sector expenditures. So, they faced a much greater revenue crisis than the Centre.
But while the States had little means to increase their revenues, the Centre resorted to a simple trick to increase its revenues—by hiking the central excise duty levied on petrol and diesel in the months of March and May 2020. But this increase in excise duty revenues did not benefit the States. That is because two of the three components that make up excise duty—additional excise duty (road and infrastructure cess) and special additional excise duty (surcharge)—are in the nature of cesses and surcharges and therefore are not shareable with States; and the Centre increased these two, while keeping the basic excise duty constant.
Table 4: Increase in Excise Duties Income of Centre During 2020–21 (Rs cr)
|2020–21 BE||2020–21 RE|
|Basic Excise Duties||82,390||47,750|
|Cess on Crude Oil||16,500||9,900|
|Special Additional Duty of Excise on Motor Spirit||40,500||74,350|
|Duty of Excise on Motor Spirit and High Speed Diesel Oil (Road and Infrastructure Cess)||1,25,610||2,24,000|
|Total: Union Excise Duties||2,67,000||3,61,000|
So, while the Centre’s excise duty income went up by Rs 94,000 crore during the year 2020–21, the share of excise duty income that was a part of the Divisible Pool and had to be shared with the States actually declined by Rs 34,640 crore (see Table 4). Because the government increased its revenues by such means, the share of cesses and surcharges in the gross tax revenues of the Centre went up to a huge 23.5% in the 2020–21 RE!
Fuelled by this growth in cess and surcharge revenue, the Centre’s net tax revenue declined by merely 8 percent during April–November 2020, whereas devolution to States declined by 21 percent during the same period.
- Budget and Agriculture Sector
When the Modi Government came to power in 2014, more than two decades of neoliberal policies had already pushed agriculture into a deep crisis. Since 1991, successive governments had:
- reduced public investment in agriculture;
- cut subsidies given on major inputs needed for agriculture (such as fertiliser, electricity and irrigation subsidies);
- gradually eliminated output support to agriculture (in the form of public procurement of agricultural produce);
- gradually reduced subsidised credit given to agriculture (by public sector banks); and
- allowed imports of heavily subsidised agricultural produce from the developed countries into India.
This multi-pronged onslaught on Indian agriculture had pushed this sector into deep crisis.
The deepening agricultural crisis led to a huge increase in rural indebtedness. The most extensive survey of farm households to date conducted by the NSSO in 2012–13 found 52 percent of the total agricultural households in the country to be in debt. The average debt was Rs 47,000 per agricultural household, in a country where the yearly income from cultivation per household was only Rs 36,972.
Two decades of battering by hostile policies and the worsening debt crisis pushed the hardy Indian peasants into such despair that they began committing suicides in record numbers. The total number of farmer suicides in the country since 1995 crossed the 300,000 mark in 2014.
Under the Modi regime …
The Modi Government came to power, promising to take steps to make agriculture profitable and double farmers’ income within five years. In each of the Modi’s Government’s eight budgets so far, the finance minister has announced grandiose schemes for agriculture. However, all these schemes have only been on paper. In practice, the Modi Government has intensified the neoliberal policies implemented by the previous regimes since 1991.
It is this deepening crisis that has led to the historic farmers’ agitation. Now at least when the farmers are agitating—thus highlighting the crisis gripping agriculture—the government should have given some attention to agriculture in the budget.
But the budgetary outlays suggest otherwise.
Let us first talk of what happened during the pandemic.
The pandemic greatly worsened the crisis gripping agriculture. Table 5 illustrates the extent of market arrivals for 22 selected crops between March and December of 2020 as a share of the corresponding market arrivals between March and December of 2019. The market arrivals for all the 22 crops were less in 2020 compared with 2019. Only in the case of six of the 22 crops were the market arrivals in 2020 above 75 per cent of the market arrivals in 2019. In 13 of the 22 crops, the market arrivals in 2020 were between 50 and 75 per cent of the market arrivals in 2019. In three out of the 22 crops, the market arrivals in 2020 were less than 50 per cent of the market arrivals in 2019.
Table 5: Total Quantity of Market Arrivals of Selected Crops During March to December 2020 as a Share of Arrivals During Same Period in 2019 (%)
|Crop||% Share of arrivals in 2020 compared to 2019||Crop||% Share of arrivals in 2020 compared to 2019||Crop||% Share of arrivals in 2020 compared to 2019|
|Paddy||77.9||Moong dal||86.9||Lady’s finger||76.4|
|Arhar dal||48.7||Peas (matar)||38.3|
The crops that did not arrive in the formal markets must have been sold by farmers informally, or dumped—obviously at huge losses. This, when already, even in the formal markets, the average farm gate prices in 2020 were lower than the prices in 2019. Because of both these factors, it is estimated that farmers suffered losses running into many thousands of crores of rupees in 2020.
The same is with dairy, meat and poultry farmers. They were also badly affected. In dairy, the demand for milk fell by 20–25% during the lockdown. This forced milk dairies to announce milk holidays. Milk prices declined by half in many States. In meat, the demand and prices are estimated to have fallen by about 50% over the lockdown period. Thousands of abattoirs and slaughterhouses closed down. In poultry, broiler birds piled up in farms, and poultry farmers across the country were forced to cull lakhs of birds. Eggs also started to pile up in poultry farms. The All India Poultry Breeders Association has estimated the total loss for the poultry industry at Rs 25,000 crore.
So, it was expected that the government would grant huge relief during the pandemic, and in the budget 2021 too.
During the pandemic, that is during the year 2020–21, the total increase in government expenditure (RE over BE) is seen as Rs 4.08 lakh crore in the budgetary papers, so this can be considered to be the actual relief package.
So far as agriculture component of this relief package is concerned, the government announced multiple relief packages for agriculture as a part of the ‘Atmanirbhar’ economic revival package. But a closer look reveals that these announcements were:
- i) Loans: For instance, the government announced a Rs 1 lakh crore financing facility for funding aggregators and Farmer Producer Organisations—this money was supposed to be raised by NABARD from the market, and then given as loans. Actual expenditure to government was zero.
- ii) Repackaged Schemes: Schemes already announced in the 2020 budget which were repackaged. For instance, the government as a part of the pandemic relief package announced a “new” scheme called the Pradhan Mantri Matsya Sampada Yojana (PMMSY), with an outlay of Rs 20,000 crore. But there was nothing new in it. It had earlier been announced in the 2019–20 budget, with a promised investment of Rs 20,500 crore, for fisheries activities and infrastructure. It was dropped in the 2020 BE, but re-instated as a part of the relief package. To this extent, it was new. But even after that, actual expenditure on this scheme as seen in the 2020–21 RE is only Rs 700 crore. Even of this, Rs 560 crore has been transferred from another head in the 2020 BE—“Integrated Development and Management of Fisheries”. For this, Rs 560 crore had already been allocated in the BE. The Revised Estimates show that expenditure under this head was zero in 2020–21. This means that actual additional expenditure on fisheries infrastructure as a part of the relief package was only Rs 140 crore in 2020–21!
Because of all these manipulations, the net result is that the Union Budget papers for 2021–22 show that total spending on agriculture (Ministry of Agriculture + Ministry of Fisheries, Animal Husbandry and Dairying) the 2020–21 RE as compared to the BE has actually fallen, by as much as 12.8%—implying that the relief package for agriculture was not even zero, but negative (Table 6)!
Table 6: Total Spending on Agriculture in Budget, 2019–20 to 2021–22 (Rs cr)
|Ministry of Agriculture and Farmers’ Welfare + Ministry of Fisheries, Animal Husbandry and Dairying (1)||142,301||105,138||146,877||128,076||135,855|
|(1) as % of Budget Outlay||5.1%||3.9%||4.8%||3.7%||3.9%|
It is a government that is determined to strangulate Indian agriculture. This can be seen from the 2019 budget figures. This year’s budget papers reveal that actual budgetary spending on agriculture in 2019–20 was a huge 26% less than the budgeted estimate for that year (Table 6). Therefore, it shouldn’t be surprising if next year’s budget papers reveal that actual spending on agriculture in 2020–21 was even less than 2020–21 RE.
Coming now to the budget estimates for this year: while they show an increase over the 2020 RE, they are lower than the 2020 BE by as much as 7.5% (Table 6). Taking inflation at 8%, it means a reduction of nearly 15% in real terms. That’s big! And given the exaggeration in government revenues for this year (as discussed above), it shouldn’t be surprising if actual expenditures are much lower.
Another way to understand the importance of agriculture in Modi’s budgets is to examine the allocation for it as a percentage of budget outlay—it has fallen from 4.8% in 2020 BE to 3.9% in 2021 BE (Table 6). As percentage of GDP, it is just 0.61%—for a sector on which 50% of the population depends for livelihoods.
Budget for Rural Development
Conditions in agriculture are intimately tied to the general state of the rural economy, and that is why public spending on rural development is also crucial for the overall development of agriculture. Here also, the outlays are hugely disappointing. While total allocation for Ministry of Rural Development (MoRD) is slated to increase by 9.2% over the previous year’s budget estimate, it has fallen by a huge 32.7% as compared to the 2020–21 RE. That is basically because of a huge cut in the budget allocation for MGNREGA.
On the whole too, the allocation for MoRD as a percentage of the budget outlay has consistently fallen over past few years—it was 4.9% of the budget outlay in 2018–19 A, and has fallen to just 3.8% in the BE for this year.
The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) is the most important scheme under the Department of Rural Development. It guarantees a minimum of 100 days of employment in a year to every willing household. Significantly, it guarantees time bound employment, within 15 days of making such a requisition, failing which it promises an unemployment allowance. This scheme has the potential to lessen the crisis gripping the rural areas and improve food security. Numerous studies have shown that NREGA has had several positive effects, including increasing rural wages, enabling better access to food and thereby reducing hunger, and reducing distress migration from rural areas.
Table 7: Budget Allocations for Ministry of Rural Development (Rs crore)
|Ministry of Rural Development||1,23,622||1,22,398||1,98,629||1,33,689|
|of which: Mahatma Gandhi National Rural Employment Guarantee Scheme||71,687||61,500||1,11,500||73,000|
And yet, the Modi Government has systematically gone about undermining the MGNREGA by not allocation sufficient funds. The allocation has been so low that this scheme has been able to make available an average of just 46.1 person-days of employment per household during the six years of Modi rule, before the pandemic struck the economy in 2020.
Last year, in the 2020–21 BE, the Modi Government further cut the budget outlay for NREGA from Rs 71,002 crore in 2019–20 RE (and Rs 71,687 in the Actuals) to just Rs 61,500, a cut of nearly 20 percent in real terms!
But then, the pandemic struck, and due to the Modi Government’s refusal to provide relief to the people rendered unemployed due to the lockdown, crores of migrant workers were forced to return to their villages. It led to a huge increase in rural distress, and the government was forced to increase its allocation for the demand-driven rural employment guarantee scheme, from budgeted Rs 61,500 crore to Rs 11,1500 crore (as seen in the RE) (see Table 7)
Even this increase was not enough to meet the increased demand for work. A report by the Peoples’ Action for Employment Guarantee, an advocacy group, estimated that over 9.7 million households that needed work under the rural jobs programme were unable to do so. Reetika Khera, economist and associate professor at the Indian Institute of Technology, Delhi, points out: “Even the enhanced budget last year was only one-third of what would be required to fulfill the promise of 100 days of work to all job card holding families”. Furthermore, because of the low MNREGA wages and the severe economic crisis, many households who did get work quickly exhausted their 100-day limit—so there was an urgent need to expand this scheme to provide at least 200 days of work to each needy household. This was in fact requested by many states. This means that the government needed to enhance the allocation of this scheme from Rs 1.1 lakh crore to at least double this amount—which of course it refused to do.
Newsreports indicate that demand for work under NREGA continues to remain high months after the easing of the lockdown. In fact, the number of households availing the work under this scheme during the months of December and January in year 2020–21 was at the same level as in August and September 2020, when coronavirus cases were at their peak.
This only bears out what we have written in our previous article on the budget, that the GDP growth figure for Q2 2020–21 may show the economy to be recovering, but this only reflects recovery of the organised sector, and the informal sector continues to be in deep crisis. With unemployment levels continuing to be very high, at least this year the government needed to increase the work entitlement for MGNREGA to 200 days and double the budget to Rs 2 lakh crore. But the FM and PM think otherwise. They feel that the economy has returned to normal, and so the Centre has cut the budget allocation for MGNREGA by one-third as compared to the 2020–21 RE.
- The ‘budget estimate’ for any ministry or scheme is the amount allocated to it in the budget papers for the following year. For instance, in her budget speech of February 2021, the Finance Minister presented ‘budget estimates’ for the financial year 2021–22 which runs from April 2021 to March 2022. Next year, when the FM presents the budget for year 2022–23, since the budget is presented on February 1, while the financial year runs till March, the government will not be able to present the actual expenditure made by it during 2021–22, but will only present what is called the ‘revised estimate’ for 2021–22. The ‘actual’ expenditure can only be assessed once the financial year is over and final accounts have been prepared; so, the ‘actual’ expenditures for the year 2021–22 will be presented in the budget papers of 2023–24. Therefore, the budget papers for 2021–22 carry the ‘revised estimates’ for year 2020–21, and ‘actual expenditures’ for the year 2019–20.
- “To Be World Leader, Private Sector Must Be Key Driver of Growth: Sitharaman”, 21 February 2021, https://www.business-standard.com.
- “Budget in the Time of the Pandemic”, February 2021, https://www.cbgaindia.org.
- “Budget 2021: The Year 2020–21 and Growing Share of Cess and Surcharge Revenue”, 31 January 2021, https://www.cnbctv18.com.
- “Into the Abyss?”, 31 January 2015, https://www.downtoearth.org.in.
- R. Ramakumar, “The Union Budget Is Marked by an Overall Compression of Expenditures for Agriculture”, 26 February 2021, https://frontline.thehindu.com.
- Shreehari Paliath and Shreya Raman, “Budget 2021 Not Enough To Boost Employment: Experts”, 3 February 2021, https://www.indiaspend.com.
- “MNREGA Coverage Expanded during Lockdown, but Safety Net Inadequate for Districts that Need it the Most”, 1 December 2020, https://www.firstpost.com.
- “Six Months after Lockdown Lifted, No Let-Up in MNREGS Demand”, 18 February 2021, https://indianexpress.com.
- Neeraj Jain, “Budget 2021–22: What Is in it for the People? Part 1”, Janata Weekly, 28 February 2021.
Neeraj Jain is a Btech in Electrical Engineering. He is a social activist with an activist group called Lokayat in Pune, and is also the Associate Editor of Janata Weekly, a weekly print magazine and blog published from Mumbai. This article was earlier published in Janata. Email: email@example.com