A closer look at the figures reveals a worrying story.
Representative image. Photo: Icarda/Flickr (ATTRIBUTION-NONCOMMERCIAL-NODERIVS 2.0 GENERIC).
As the country gears up for the presentation of the Budget for the financial year (FY) 2024-25, the economic survey for 2023-24, tabled by Union finance minister Nirmala Sitharaman is key to understanding what plagues the current government.
This will be the first budget presented by a Bharatiya Janata Party which does not hold a majority in the Lok Sabha.
The economic survey tabled yesterday projected that India’s real GDP grew by 8.2% in FY24, marking a growth of over 7% for the third consecutive year. Does this unprecedented growth benefit those who are at the bottom, with approximately 3.44 crore people living in extreme poverty in the country? Numerous issues impact those at the bottom of the socioeconomic ladder, with major macroeconomic indicators affecting them far more significantly than those at the top.
Inflation is one of the variables that significantly impacts the poorer and middle-class, as it leads to higher spending on the same basket of goods, thereby reducing household gross savings. Household savings hit a record low of 5.2%of gross national disposable income (GNDI) in FY23. The recently released monthly data from the MOSPI (Ministry of Statistics and Programme Implementation) shows that while headline and core inflation have eased to 5.1% and 3.1% respectively, the CFPI (Consumer Food Price Index) remains high at 9.4% in June 2024. There has been ongoing debate that India’s inflation is primarily driven by food inflation. The present economic survey notes that “India’s inflation targeting framework should consider targeting inflation excluding food,” citing that it is not demand-induced but supply-induced.
Is the government now considering hiding the increased rate of food prices by changing the inflation targeting framework? Regardless of what the government does, the brunt of the rise will continue to affect the people.
Many countries use the GDP deflator, also known as the implicit price deflator, to measure inflation. This measure reflects the ratio of the value of goods and services an economy produces in a particular year at current prices to those in the base year, capturing the true economic scenario as it is not confined to a fixed basket of goods but reflects changes across the entire economy. An eye-opening analysis by the Financial Accountability Network, titled ‘Inflation’ reveals a surge in India’s GDP implicit deflator, skyrocketing from 2.4% in 2019 to 8.2% in 2022, averaging 6%. This rate is significantly higher than that of lower middle-income countries (5.2%) and high-income countries (2.9%).
Source: Made by the author for Financial Accountability Network India – FAN India.
Taxation is another crucial variable that garners significant speculation and close attention during the budget presentation. The economic survey has projected a 13.4% growth in gross tax revenue for FY24, with a tax buoyancy of 1.4, attributing this to enhanced progressivity in taxation over recent years. However, a closer examination of the major tax revenue sources reveals some alarming trends. While the government claims that direct taxes contribute about 55% to gross tax revenue and indirect taxes 45%, several issues emerge.
Visualisation by the author. Source: Union Budget documents.
Particularly concerning are the disparities in taxation between corporates and individual income taxpayers, and the increasing percentage of GST receipts in total tax revenue, indicating that even those not within the tax slabs are ultimately taxed at a higher rate. The share of total tax revenue receipts from corporates was around 31% in FY 2015-16 but has significantly declined to 26% in 2023-24. This reduction led to a government loss of about Rs 1 lakh crore in FY 2020-21, which was offset by taxing the people. Consequently, receipts from income tax have surged from 19.8% to 30%.
Adding to the burden on the populace is the rise in GST, which has increased from 23% of total tax revenue in FY 2017-18 to 28% in FY 2023-24. Moreover, the introduction of GST has led to a sharp increase in tax collection expenditures. The total expenditure on tax collection was around Rs 10.6 thousand crore in FY 2015-16, which has ballooned to around Rs 47.7 thousand crore in the revised estimates for FY 2023-24. This problem could have been alleviated with the wealth tax, but the government abolished it in favour of the ultra-rich.
Visualisation by the author. Source: Union Budget documents.
Another major problem that has surfaced in recent years are non-performing asset write-offs and haircuts offered to big corporates. Over the last decade, the government has written off around Rs 14.5 lakh crore since it assumed power in 2014, with Rs 2.09 lakh crore wiped out in FY23 alone. Regarding haircuts, banks took a loss of around Rs 69 for every Rs 100 admitted in every insolvency and bankruptcy case. Despite this, the government has touted the mechanism as remarkable progress in the present economic survey.
Data from the quarterly newsletter released by the Insolvency and Bankruptcy Board of India (IBBI) shows that the percentage of realisation of admitted claims under IBC has decreased from 54% in FY18 to 32% in FY24. In 2018, the RBI referred 12 large corporate accounts to IBC for resolution, highlighting concerns about significant NPAs in these accounts, which have been resolved with an average haircut of around 46%.
The analysis by FAN India reveals that the total haircut offered to these 12 large corporate accounts under IBC amounts to Rs 2.84 lakh crore. This figure is significantly greater than the combined allocation of Rs 2.13 lakh crore for agriculture and farmer’s welfare and MGNREGS in the interim budget estimates for 2024-25. If this written-off amount had been recovered, the allocation for these sectors could have been doubled.
Visualisation by author. Source: https://ibbi.gov.in/en
Expenditure on social services is crucial for a developing nation like India, contributing to eradicating poverty, improving health infrastructure, enhancing education, promoting social equity, fostering social cohesion, and advancing rural development. According to the government in the economic survey, “Over the last decade, the Indian concept of welfare has significantly transformed into a long-term oriented, effective, and empowering avatar”. As per government estimates, overall welfare expenditure has grown at a CAGR of 12.8%, education by 9.4%, and health by 15.8%.
However, a closer look at the figures in terms of percentage of total expenditure reveals a different story. For example, spending on education was just around 1.9% in FY 2017-18, which has fallen to 1.7% in 2023-24. Medical and public health expenditure has decreased from 0.8% to 0.16%, and welfare for Scheduled Castes, Scheduled Tribes, and minorities has declined from 0.16% to 0.13%. Despite overall growth in expenditure, the proportion allocated to these critical sectors has either decreased or remained stagnant, highlighting a gap between intent and impact.
As we await the finance minister’s announcement, one can only hope for a budget that prioritises inclusivity and equitable growth.
This article was originally published in The Wire and can be read here.
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