Modi government's last full Budget will be dull, it's going to have very little impact

There is absolutely nothing to be excited about as the Narendra Modi government prepares itself to present its last full Budget. Budget 2018, will in fact, usher in an era of listless budgets in the country. This statement may sound strange given the hoopla surrounding the Budget presentation on February 1.

Given the fact that the consumer quotient of the Budget is nil and electoral politics is set to guide policy aspects, the only thing to look forward to on February 1 is finance minister Arun Jaitley's fiscal arithmetic. Let's get in to the facts before Budget day's fluff comes to overwhelm us.

Nothing for consumers

People so far looked forward to Budget presentations because they brought change to excise and service taxes among other things. Interestingly, unlike the past practice of annual revision in indirect taxes, now, the Goods and Services Tax (GST) Council comes out with a mini budget every month.

After GST, the Budget is left with very limited scope for changes in custom duties and income tax. However, since sources to generate revenue for the government are drying up, the Budget is unlikely to see any major concessions for income tax payers.

Since the GST has taken away from states the power to levy taxes, state budgets too are likely to turn into merely an exercise to present balance sheets. However, for analysts and public finance enthusiasts, the post GST structure of revenue receipts and its sharing with the state would be a new feature in this budget.

Government's purse

Every Budget, finance ministers raise their pitch when they throw big numbers while announcing allocations inviting thumping of tables. However, the government this year lacks the room to spend exorbitantly. The government has been frugal in its expenditure due to shortfall in GST revenues and the GST compensation it owes states. The government was forced to cut expenditure, including on the much-needed capital front, in August and September 2017 in order to contain fiscal slippage. Going by the reports emerging from the Budget preparation process, the support for Indian Railways is likely to be cut by 27 per cent in 2018-19.

This is bad news considering government expenditure was the last hope for the economy which has been hit by falling private investment and declining consumption.

States budget appear more stressed when it comes to fiscal management. In the run up to the budgets, states have slowed down the pace of capital spending in order to tackle looming deficits. As many as 17 states reported 10-25 per cent cut in capital expenditure by the third quarter of fiscal 2018-19.

That big number

As consumers have nothing to look forward to in this budget, the fiscal deficit number would be the budget's most interesting takeaway. Jaitley has so far managed this front well. However in his last budget, fiscal slippage seems imminent due to inadequate GST revenues, subpar dividends from the Reserve Bank of India, and lower than expected GDP growth.

In its medium term fiscal policy statement issued with last year's budget, the government had said that it would target a fiscal deficit to GDP ratio of 3.2 per cent for FY18 and 3 per cent for FY19. Despite the likely upside surprise on the disinvestment target (Rs 543 billon delivered so far against the Rs 725 billion budgeted), the government may face a fiscal slippage of 10-30 bps in FY18.

In order to cap the alarming rise in deficit, the government seems to be trying to persuade Central Public Sector Enterprises (CPSEs) to give extra dividends. The government is likely to target even higher disinvestments proceeds in both FY18 and FY19. Therefore, not only the target for the current year - Rs 725 bilion - will be breached, but also the government is likely to budget a hefty amount from this source next year as well.

As regards FY19, the government is likely to target a fiscal deficit of 3.2 per cent for FY19 as against 3 per cent indicated earlier given compulsions to spend in an election year.

This Budget was expected to be the last hoorah of the Modi government before the PM kicks-off the electoral campaign for 2019 general elections. However, by design Budget 2018 would be the harbinger of a new era of budgets - those that would be more important to the economists than people.

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