Explaining the Rise in Revenue Deficit Between Modi Govt's Interim and Full Budgets -Aneesha Chitgupi

-TheWire.in

While the revenue deficit is estimated to increase in the Union Budget in comparison to the interim one, the fiscal deficit shows a decline thanks to the increase in capital receipts especially through disinvestment.

A comparison between the Interim Budget (IB) presented on February 1, 2019, and the full Union Budget (FB) presented before parliament on July for the current fiscal year (2019-20) throws up some intriguing questions.

While most commentators have hailed the lack of fiscal profligacy and constraint displayed in reining the fiscal deficit to 3.3% of GDP projected in the FB as against 3.4% in the IB, the increase in the revenue deficit to GDP has gone mostly unnoticed.

Under the new framework of the Fiscal Responsibility and Budget Management (FRBM) Act, ‘Revenue Deficit’ and ‘Effective Revenue Deficit’ have been removed as targeted fiscal indicators of measuring fiscal health of the economy, thus, unlikely to attract much attention.

The revenue account is made up of revenue receipts and expenditure – when the latter is greater than the former, it leads to what is called a revenue deficit. Revenue receipts include tax revenue (which consists of direct and indirect taxes.) and non-tax revenue (such as interest, dividends, profits, external grants etc.).

While the impact of revenue deficit on the fiscal deficit of the Union government can be reduced by increasing capital receipts excluding borrowings, one wonders why a shift in revenue estimates changed over four months.

A closer look at the revenue account – while drawing comparisons between the two budgets released this year – throws up a significant shift in tax revenues. The gross tax revenue estimated in FB (Rs 24.6 lakh crore) reduced by Rs 0.91 lakh crore as compared to IB (Rs 25.5 lakh crore). Among its components, corporate tax is the sole item that shows an increased collection in the FB when compared to IB (of Rs 0.06 lakh crore), whereas all the other items such as income tax, GST, states’ share in tax revenue show a reduction in FB.

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TheWire.in, 25 July, 2019, https://thewire.in/economy/explaining-the-rise-in-revenue-deficit-between-modi-govts-interim-and-full-budgets

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