Unpacking the Union Budget 2019-20

On July 5, Finance Minister Nirmala Sitharaman presented the union budget for the year 2019-20. In order to go beyond individual pointers and discern the larger policy implications, it is necessary to take a broader view of the budget and see how it will place the Indian economy in the months and years to come.

Carnegie India hosted a roundtable discussion on the Union Budget 2019-20. Suyash Rai, fellow at Carnegie India, provided an overview of and key insights into the union budget 2019-20, followed by a discussion with participants. The discussion was moderated by Rudra Chaudhuri, director of Carnegie India.

Discussion Highlights

• Changes in the Fiscal System: Participants noted that, with the cessation of the government’s Five Year Plans for socio-economic development in 2017, there is no longer a distinction between planned and non-planned expenditure. They drew attention to an increase in revenue distribution by the central government to the states from 32 to 42 percent from 2015-16. They added that this has resulted in greater expenditure on welfare schemes being borne by the states. Participants also discussed the impact of the Goods and Services Tax (GST), and noted major amendments to the fiscal responsibility law.
• Fiscal Management Trends: Participants noted a huge shortfall from the budgeted to the actual non-tax revenues in 2017-18. They argued that this shortfall was partially set-off by an increase in tax revenues and non-debt capital receipts, but that there was a higher fiscal deficit than budgeted. The participants discussed that, as the year 2018-19 was formative for the implementation of the GST, revenue collection became difficult to predict and the provisional actual tax revenue collections were lower than those budgeted. The increase in income tax collection was much lower than budgeted, they stated. The participants noted that, in order to meet the fiscal deficit target, the government curbed expenditure significantly. They noted an increase in the resources of public enterprises, and stated that these increases were due to large, off-budget borrowings by these enterprises. Participants also noted that up till the year 2016-17, the central and the state governments were the prime borrowers from the National Small Savings Fund, a public account of India, but from 2017-18 this borrowing has extended to public sector enterprises. They added that the funding for welfare schemes is also moving primarily off-budget (such as through fully-serviced bonds). Participants emphasized that the current trend of fiscal management seems to be focused on the accounting of deficits and not the economic impact of additional government borrowings. 
• The Union Budget 2019-20: Participants discussed how Finance Minister Nirmala Sitharaman’s 2019 budget speech suggested implementing a GST 2.0 with reduced rates, simpler compliances, and other reforms. They also noted protectionist trends dating back to 2017-18, such as increasing customs duties to promote domestic industries, has continued into 2019-20. Participants highlighted changes in expenditure, including a decrease in expenditure for the defense and social development sectors, and an increase for the agriculture and rural development sectors. They also pointed to a significant increase in the government’s expenditure on major subsidies, but argued that this was an attempt to bring the expenditure on-budget, as a large part of it was off-budget over last two years. 
• Fiscal Management Going Forward: The participants noted that, due to off-budget borrowing, the expenditure of the government continues to increase, despite the appearance of fiscal deficit targets being met. They suggested that this expenditure be kept on-budget, noting that, in the longer term, the economic impact will remain similar, whether the borrowing is done on or off-budget. The participants also discussed the need for alternative ways to conduct fiscal management, emphasizing the need for privatization and asset-monetization, noting that the receipts generated should be invested in further domestic economic development. They also discussed the possibility of scaling back expenditure on state subjects by the central government, and reforming current expenditure management. Participants emphasized the importance of the Fiscal Responsibility and Budget Management Act (2003), which contains an escape clause that allows on-budget borrowing and delayed fiscal consolidation.

This event summary was prepared by Shipra Nagpal, a consultant at Carnegie India.