Unrealistic assumptions

The Budget was presented in the backdrop of declining growth and a demand slowdown. The quantum of deficits has been worked out on the assumption of 10 per cent nominal GDP growth in FY21 and 12.0 per cent growth in gross tax revenue. This means gross tax revenue collection buoyancy has been pegged at 1.2x. Growth in corporate tax, income tax, GST has been assumed at 11.5 per cent, 14.0 per cent and 12.8 per cent respectively.

Achieving 10 per cent nominal growth and 1.2x gross tax revenue buoyancy appears stretched. The pressure is likely to come from GST (12.8 per cent growth in FY21 over 5.8 per cent in FY20) and corporate tax (FY21: 11.5 per cent, FY20: -8.0 per cent). While the dividend distribution tax at the hand of the receiver may have some impact on income tax collection, 14 per cent growth appears difficult. The expenditure assumptions for FY21 appear realistic at 11.9 per cent (FY20, RE).

On the whole, there could be a ~60,000-crore tax revenue shortfall if economic growth and tax buoyancy fall short of the assumptions. Achieving 3.3 per cent fiscal deficit will depend on the success of ~2.1 trillion disinvestment receipts. The economy was looking for some sort of consumption push in rural areas; however, aggregate allocations for key rural focus programmes are budgeted to increase to ~1.76 trillion from ~1.58 trillion (11.1 per cent growth). The expenditure on these programmes directly reaches people at the bottom of the pyramid. These people have the potential to revive consumption demand faster than income tax rate cut.