This Budget is small. Total central government expenditure in 2018-19 touched 13.04% of GDP, as per the revised estimates. At 13.4%, total expenditure growth is budgeted to be lower than the 14.7% registered last fiscal. But then, that was an election year, when expenditure growth has a mind of its own. The size of the Centre’s expenditure will reach 13.2% of GDP in 2019-20. The government of France spends 57% of GDP, by contrast. Can India really afford any smaller government than it actually has? Including expenditure by all the state governments combined, general government spending in India is only about 27% of GDP.
Capital expenditure is scheduled to grow a meagre 6.9%, after it grew over 20% last fiscal. As a percentage of GDP, capital expenditure is budgeted to actually shrink: from 1.68% to 1.60%.
If you plan to spend less, you have the luxury of earning less. The government expects total tax collections by the Centre (including the share that would devolve to the states) to shrink a little to 11.6% of GDP from 11.9% of GDP last fiscal.
The fiscal deficit is expected to shrink ever so little, from 3.4% of GDP to 3.3% of GDP. But the composition of the government’s spending is slated to suffer some deterioration, besides the dip in capital expenditure. Interest payments as a proportion of GDP are expected to climb a tad from 3.12% to 3.13%.
This figure could go up. The government proposes to raise some of its borrowings abroad, in a significant departure from past practice. Honest accounting would add the cost of hedging the foreign exchange risk on such borrowings to interest payments, although accountants could fudge this.
Privatisation is back on the agenda, although if you searched the budget speech for ‘privatisation’, you would come up empty-handed. It is called strategic divestment.
This is not the only risky proposal in the budget. Most pernicious is the move to centralise all research funding and align research in universities and other institutions with national priorities. This kind of thing would be called thought control in some countries. In India, of course, it would pass muster as nationalism.
The budget is positively disappointing when it comes to import duties. Some have been slashed, some, raised. In the name of Make in India. This is a very bad idea. Scrapping import duties on something on the ground that it is not made in India runs the risk of perpetuating that deficit forever. A low, uniform duty makes for dynamic efficiency.
Efforts to deepen and broaden the debt market are welcome. As is revival of PPP in infrastructure. On balance, the Budget’s importance in the economy stands to shrink further.