EVALUATION OF UNION BUDGET

One, is the Economic Survey, prepared by the Chief Economic Advisor.

Two, Tuesday will also witness the release of the International Monetary Fund’s latest update of its World Economic Outlook. Both documents will carry pointers about the prospects of India’s economy.

On February 1, the US central bank will also release its next policy decision. The US Federal Reserve’s decision will likely have a bearing on Indian markets as well as the RBI’s own monetary policy stance, which is due to be revised later on in February

2.How can we evaluate or judge a union budget

Union Budgets tend to differ from one year to another. However, here are five metrics on which any Union Budget must come through

2.1.The Budget Speech

Abraham Lincoln once apologised for writing a very long letter. But the reason he gave for doing so was quite instructive -“I’m sorry I wrote such a long letter. I did not have the time to write a short one”

Another legendary US president, Franklin Delano Roosevelt (or FDR) advised: “Be sincere, be brief, be seated.”

The speech introduces the Budget to the public, Shorn of all the chatter around it, the Budget is essentially an annual financial statement

What public needs to know or likely to know is

1. Whether they will be taxed less or more

2.Whether government will be able to make its ends meet, if not how much it borrows from the market

3.Where will government spends all money

2.2.Budget numbers

• The budget is based on certain assumptions of economic growth and revenue buoyancy. But sometimes the government’s assumptions leave everyone puzzled
• In the Budget of 2019-20, first budget of the second government under PM Modi :
• Finance Minister Nirmala Sitaraman assumed a nominal GDP growth of 12%. Assuming inflation would be at 4% which was RBI's mandate 
• So, it suggested that FM expected real GDP growth to grow by 8% in 2019-20
• GDP for BE 2019-2020 has been projected at Rs 21100607 crore assuming 12.0 % growth over the estimated GDP of Rs 18840731 crore for 2018-2019 (RE)
• This Budget was presented in July and by then it was clear to all observers that India’s economy was slowing down quite sharply
• In fact, soon enough the government’s own data revealed that the economy grew by just 5% in the first quarter of that financial year (April to June)
• The economy had been facing secular deceleration since the start of 2017-18
• As it happened, the economy grew by just 3.7% that financial year, less than half of what the FM had envisaged more than a quarter into the financial year
• This meant that all other Budget calculations were upset. But equally importantly, it undermined the credibility of the Budget numbers since everyone outside the government doubted the assumption that the economy would grow at 8%

• Fiscal Deficit:The amount of money the government borrows from the markets is often the most talked about metric in any Union Budget. That’s for two reasons
• India has a legislation , the Fiscal Responsibility and Budget Management (FRBM) Act  which stipulates the maximum level of fiscal deficit allowed to any government :Union or state
• If a government exceeds the fiscal deficit it risks the wrath of the markets
• In India’s case, however, it isn’t just the fiscal deficit that one should look at. It is equally important to notice the revenue deficit
• Simply put, the revenue deficit is the gap between the government’s everyday expenses (say salaries and pensions) and everyday earnings (taxes, cesses etc).
• The original mandate of the FRBM Act was two-fold: a revenue deficit of 0% (of GDP) and a fiscal deficit of 3% (of GDP)
• Fiscal prudence demands that the government meets its everyday expenses by its everyday revenues while borrowing (fiscal deficit) only for capital expenditure (expenditure that is made towards making productive assets such as roads and bridges)

1. The calculation of disinvestment targets. A cursory look at past targets over the decades will suggest that disinvestment targets fluctuate quite wildly from one year to another. Often, their achievements also fluctuate just as wildly
2. When it comes to taxation, there is the question of fairness. Ideally, India should have a tax regime where the taxation rises as one goes from poor to rich. As such, direct tax rates  be it personal income tax or corporate taxation  should rise as one considers richer entities

• In allocating expenditure, the trick lies in figuring out the country’s priorities. Pakistan provides a stark example of a nation that prioritised its military power over the health and education of its population
• In India, out of every Rs 100 that the government spends, only Rs 2 goes towards public health. On education, too, the government spends Rs 2
• It spends Rs 10 on defence. Rs 12 is spent on subsidies (food, fuel and fertilisers). And Rs 22 is spent on paying back the interest on past loans
• The expenditure on health is alarming considering that India not only has the largest pool of poor people in the world but also the largest pool of malnourished children in the world
• The same holds for the budget allocation on education. Notwithstanding, rising enrolment in schools, India’s learning outcomes are shoddy
• No country has risen to dominate the world without first substantially investing in the health and education of its people