Chidambaram has used the freedom that comes from the knowledge that neither he nor his party is going to be picking up the pieces after the elections

Hope. That is the binding force holding together the set of grand numbers put together by Finance Minister P. Chidambaram in the interim budget for 2014-15. Leave that out and all you are left with is a set of figures that only a magician could have conjured up. These estimates will not even be truly tested because they will be relevant only for the next three months before another Finance Minister comes by and springs his or her own set of numbers on us.

The biggest questions on the interim budget relate to the assumptions on the four aspects that are at the core of the budget-making exercise — GDP growth, fiscal deficit, revenue collections, and expenditure targets. Mr. Chidambaram has assumed a 13.4 per cent nominal GDP growth rate for 2014-15, a highly optimistic 4.1 per cent target for fiscal deficit, 19 per cent growth in tax revenues and a significantly lower subsidy burden. Each of these can be questioned.

Bursting the bubble



Let’s take the growth assumption first. The Finance Minister’s nominal growth rate assumption should translate into a real growth of at least 6 per cent unless he’s assumed a runaway inflation in the next fiscal, which is hopefully not the case. Given that the quality of the growth estimate of 4.9 per cent for this fiscal is itself suspect — the assumption is that the economy will grow by 5.2 per cent in the last two quarters of fiscal 2013-14 — only the most ambitious can take the 2014-15 growth estimate at face value.

Agriculture proved to be the saviour in the current fiscal and given the unpredictable monsoon cycle, it will be a gamble to bank on this next fiscal. This means the industry has to rebound, and if the data of the last few months and the prevailing sentiment in business and industry is anything to go by, only the brave can assume that the industry will lend its shoulder to GDP growth in a big way next fiscal. At best, we might see a start of the recovery process subject to a stable government being voted in.

If the growth assumption is fanciful, the revenue collections are more so. Mr. Chidambaram’s assumption of an 18 per cent growth in tax revenues for 2014-15 should be seen in the context of a 6 per cent reduction in the revised estimate for 2013-14 compared to what was originally budgeted.

Mr. Chidambaram has also assumed a 15 per cent growth in corporate tax and 12 per cent in excise duty. These estimates again assume that corporate activity will rebound and companies will start showing a stellar growth in profits, which is highly optimistic.

Besides, we also need to factor in the impact of reduction in excise duties, even if only for a three-month period, until June 30, on automobiles, capital goods and consumer non-durables, which the Finance Minister has estimated at around Rs. 800 crore.

Non-tax revenues next year are also likely to be lower with the Finance Minister forcing public sector companies to declare interim dividends to make up the shortfall this fiscal. In effect, he has drawn down next year’s revenues this year. Historically, every Finance Minister has over-estimated disinvestment revenues and except for a couple of years, these revenues have never exceeded the target since the exercise first began after liberalisation.

In the current fiscal, against an estimated Rs.40,000 crore from disinvestment, the government could garner just Rs.16,027 crore but that has not prevented Mr. Chidambaram from projecting Rs. 36,925 crore for 2014-15. Given the present state of the markets, no coherent policy on privatisation, and the fact that it will be well into the next fiscal before the next government settles in, it is unlikely that this target will be met.

The fairytale numbers further extend to expenditure estimates. The most notable of this is subsidies where the Finance Minister seems to have underestimated the outgo for the next fiscal by a significant margin. Fuel subsidy for 2014-15, for instance, is budgeted at Rs.63,427 crore compared to an outgo of Rs.85,480 crore in the current fiscal, which is by itself way above the budgeted Rs.65,000 crore. This, keeping in mind that the Finance Minister has rolled over Rs.35,000 crore of fuel subsidy from this year to the next, which means that the next government will have just Rs.28,427 crore to play with on this count!

The story of underestimation repeats itself in other subsidies such as fertilizer and food. It is on these set of ambitious numbers that rests the fiscal deficit projection of 4.1 per cent.

What makes this projection worse is that the quality of even this year’s projected fiscal deficit of 4.6 per cent — assuming that it is not overshot before this fiscal-end — is dubious, with large expenditure cuts and revenues shored up by one-time gains such as that from spectrum sale.

Eyeing the polls



Given the above, can the Opposition be blamed for calling this an election-eve interim budget? There can be only one possible explanation for Mr. Chidambaram’s claims: he has used the freedom that comes from the knowledge that neither he nor his party is going to be picking up the pieces after the elections and run the finances of the next government.

That this was a budget done with an eye on the polls is also borne out by the giveaways on automobiles, consumer non-durables and education loans, all of which concern the urban middle-class voter. Unless, of course, the Finance Minister was taken in by the Random Acts of Kindness Day, which fell on February 17, the day he presented his interim budget.

raghuvir.s@thehindu.co.in