Budget 2020: How will Sitharaman pull of Rs 2.1-trn disinvestment miracle?

The government has promised to raise Rs 120,000 crore via disinvestment, and an additional Rs 90,000 crore from sale of government equity in public-sector banks and financial institutions, in 2020-21.

Riding on an ambitious plan for disinvestment, a sharp jump in non-tax revenues and a tight control on outlays for subsidies as well as defence, Finance Minister Nirmala Sitharaman on Saturday promised to bring the Union government’s fiscal consolidation programme back on track.

Presenting the Union Budget for 2020-21, Sitharaman conceded a slippage in the current year’s fiscal deficit to 3.8 per cent of gross domestic product (GDP). Last July, she had promised a fiscal deficit of 3.3 per cent.

But for next year, she has promised to rein in the fiscal deficit by bringing it down to 3.5 per cent of GDP and laying out a revised fiscal consolidation plan to bring the deficit down to 3.3 per cent in 2021-22 and 3.1 per cent in 2022-23.

However, these are only the headline fiscal deficit numbers and do not reveal the full impact of the extra-Budget borrowings of the government. In 2019-20, total extra-Budget borrowings (including those mobilised through the issue of bonds fully serviced by the government and the financial support extended through loans from the National Small Savings Fund) were estimated at Rs 1.73 trillion. For 2020-21, these borrowings are expected to rise by eight per cent to Rs 1.86 trillion.

If these extra-Budgetary borrowings are included in the Centre’s total borrowings, the actual fiscal deficit would go up to 4.5 per cent of GDP in 2019-20 and to 4.36 per cent in 2020-21.

Nevertheless, it must be accepted that the reduced fiscal deficit for next year has been achieved after conceding a larger devolution to the states (presumably because of the recommendations of the Fifteenth Finance Commission), a direct tax give-away of Rs 40,000 crore to individuals as a result of a new simplified personal income-tax regime, under which taxpayers could opt out of some of the exemptions and pay tax at a lower rate, and an estimated forgone revenue of Rs 25,000 crore as a result of the decision to tax dividend in the hands of recipients at their respective applicable rates, instead of taxing the entities that pay dividend.