Budget 2020: The math on macro numbers

First on gross domestic product (GDP) numbers, what do you assume as GDP growth? In the revised estimates (RE) of the current year, the government had assumed 7.5 percent nominal GDP because that’s the number the Central Central Statistics Office (CSO) has given. CNBC-TV18's poll of economists suggested that for the next year that starts on April 1, India will add only 10 percent more to its GDP so that will be Rs 224.5 trillion with 10 percent nominal GDP growth and that’s exactly what the Budget estimates are.

Coming to tax assumptions. It is same thing if you assume a higher GDP you assume the nominal GDP is at 12 percent so taxes will grow by 15 percent.

Taxes grow at the most 1 percentage point over nominal GDP. In FY19 it witnessed a 6 percent tax growth. So in FY20, when CNBC-TV18 polled for the current year, the respondents told that India will only get to Rs 14.2 trillion although last year’s Budget had expected Rs 16.36 trillion tax collection.

So, it’s only 7.8 percent. Now, the revised estimates for the current year, the government has taken 15.04. This is a 7.5 percent nominal GDP year. Why the government is assuming 14.2 percent growth in taxes? Well, there is a conciliation scheme if one is disputing on direct taxes one can go to the government by March 31 and pay up to solve the legal issue.

Maybe the government is expecting more on that but this is the only non-credible number in the entire Budget.

FY21, for the next year, CNBC-TV18 poll said it will be Rs 15.9 trillion because it was going over Rs 14.2 trillion and the economists thought it would be Rs 15.9 trillion, a growth of 12 percent on a 10 percent GDP growth. The Budget estimates are taking it at Rs 16.36 trillion and this is quite big because they are taking Rs 15.4 trillion as the base.

If they took Rs 14.2 trillion as the base, Rs 16.36 trillion is very tall. If you take Rs 15.9 trillion as the base it is only an increase of 8.8 percent which is imminently deliverable. If you do 10 percent nominal GDP you will easily deliver 9 percent growth in taxes. This year’s assumption is a little too much and not very sure whether we have assumed a little more. Most of the economists are not terribly worried but I am.

Getting to growth assumptions, because you have not assumed too much by way of tax growth the fiscal deficit is extremely credible. I am going by the previous years when they said they would do 3.3 percent for FY19 and they ended up with 3.4 percent. Our poll for the current year had also anticipated that it will get to Rs 7.5 trillion and from Rs 7.03 trillion it has come to Rs 7.5 trillion and that’s exactly what the Budget also said. Yes, the revised estimates are – we won’t stop at 0.73 trillion; we will go to Rs 7.67 trillion. We had expected they would stop at Rs 7.5 trillion. So we were expecting that current year fiscal deficit will be 3.7-3.8 percent. The government said 3.8 percent, so very credible numbers there.

For FY21, our poll was that they will assume a deficit of Rs 7.9 trillion that’s 3.5 percent fiscal deficit and that’s what they have also written in the Budget numbers. So as far as the macros are concerned the economists are giving big green tick in terms of credibility to the budget.

On market borrowing front there is a pleasant surprise. For the current year, there are 2 more months to go February and March, the expectation was they will borrow Rs 30,000-50,000 crore more whereas they are actually borrowing only Rs 26,000 crore more – even this is not a borrowing; it’s some kind of a buyback and switch they will do so the market will be happy that it’s not as bad as they thought.

For FY21 poll, the expectation was fresh borrowing would be at Rs 5.5 lakh crore and they are actually going to borrow Rs 5.36 lakh crore. So, this is fairly within market expectations, in fact slightly better so the bond market might celebrate this.