Budget 2021-22: After repeated misses, this Budget sets modest tax collection targets

Not just increasing reliance on extra-budgetary resources, but the Budgets in the last few years have also had over-ambitious fiscal targets, founded on unrealistic tax collection numbers.

Extra-budgetary resources (EBRs) refers to allocations made from money outside of revenue or borrowings, through means such as the National Small Savings Fund, and fully serviced bonds like the bank recapitalisation bonds.

The government is expecting to end almost all entries financed through EBRs. The biggest of them being the loans given to Food Corporation of India (FCI) from the National Social Security Fund (NSSF).

Budget 2021-22 not only finally comes clean about the accounting methodology and putting on record a dire fiscal situation, but also keeps its tax targets understated.

"Our revenue figures for this time are understated. So we have taken our nominal GDP at 14.4 percent and the revenues at 16.7. The buoyancy is only 1.16. We are hopeful that we will be able to get more than this and also achieve more in the other areas of non-tax revenue and disinvestment. We will definitely be within 6.8 percent (fiscal deficit) and could be lower," economic affairs secretary Tarun Bajaj had said at a post-Budget press conference.

Budget 2021-22 set a gross tax revenue target of Rs 22.17 lakh crore for FY22. The Centre's net tax revenue for FY22 has been pegged at Rs 15.45 lakh crore.

The Budget document showed that the Revised Estimates (RE) for gross revenue collection for FY21 came in at Rs 19 lakh crore, against the Budget Estimates (BE) of Rs 24.23 lakh crore. The RE for net tax revenue for FY21 came in at Rs 13.44 lakh crore, against the BE of Rs 16.35 lakh crore.

For FY 2018-19, tax collections fell short of the Budget target by Rs 1.91 lakh crore and the shortfall was Rs 4.51 lakh crore in FY 2019-20. The slowdown in revenue collection happened even before the pandemic drained the government's coffers.

For FY 2021-22, the BE for tax collections is lower than the original target of the current financial year by as much as Rs 2.06 lakh crore. Tax collections in Oct-Dec grew 33.1 percent on year, as against a contraction of 32.6 percent in Apr-Jun.

Presenting the budget in the Lok Sabha, finance minister Nirmala Sitharaman had said the Centre is targeting a fiscal deficit of 6.8 percent of gross domestic product (GDP) for FY22, which will gradually come down to below 4.5 percent by FY26.

For FY21, the revised fiscal deficit estimate now stands at 9.5 percent of GDP, from a budgeted estimate of 3.5 percent.

The underlying message of this Budget was that it's an expansionary one drafted to provide a stimulus to the post-Covid Indian economy. The total expenditure size for FY21 now stands at 34.5 lakh crore, up from Rs 30.4 lakh crore planned.

For FY22, the Centre will now spend Rs 34.83 lakh crore. The total capital expenditure for FY22 has been budgeted at Rs 5.54 lakh crore. For FY21, the Centre had budgeted its own capital expenditure at Rs 4.13 lakh crore, which was later increased by Rs 38,000 crore.

With an expansionary budget guiding the next financial year, the economy is expected to show signs of pick up, thereby bringing in better revenues.

There could be legitimate concerns over whether fiscal expansionism through capital expenditure would manifest the desired results. But over-optimistic projections and below-the-line accounting aren't any of them.