'NDA vs UPA: Modi govt maintains fiscal discipline, but quality of spending unimpressive'

Modi government has more or less continued with the fiscal policy of UPA government led by Manmohan Singh, a report by Elara Capital said.

In its report Elara has compared economic policies of the Modi government with that of Manmohan Singh government (2009-2014).

The report says that the NDA government has maintained the greater headline fiscal discipline, keeping the fiscal deficit in range with the budgeted value for the most part of its governance. The government also made a constant effort to reduce the deficit every year. Revenue deficit was also relatively lower during NDA years.

NDA kept the fiscal deficit under 4 percent of the GDP for the most part of its regime. During the second stint of Manmohan Singh at the PMO, the fiscal deficit was always more than 4 percent, even touching 6 percent in FY10. However, largely within the target.

A relatively greater Tax-GDP ratio and tax compliance also helped the NDA government. According to data provided by Elara, there has been a 200 bps increase in the tax-GDP ratio in the past five years. The data shows that the ratio of the number of returns filed to the number of persons filing the returns has also increased (from 1.15 in FY14 to 1.26 in FY18). This suggests improvement in compliance.

However, Elara said the quality of spending remains unimpressive during the NDA regime. Capital expenditure by the government saw robust growth in the initial two years but lost pace in the later years.

“More importantly, the NDA government continues to push the burden of capex on extra-budgetary recourses with Internal and Extra-Budgetary Resources (IEBR) rising to Rs 6 lakh crore in FY20 from less than Rs 3 lakh crore in FY14 under the UPA regime,” Elara said in its report.

NDA also increased its reliance on dividend receipt from RBI, continuing the policy adopted by UPA towards the end of its tenure.

“Reliance on unconventional and off-market disinvestments rose multi-fold under the NDA. Receipts worth Rs 7,472 crore were in the form of buybacks and cross-holdings of Central Public Sector Enterprises under the entire regime of UPA-2 vs Rs 65,698 crore under the NDA to date, suggesting a greater reliance on unconventional measures for raising revenue,” Elara said in its report.

Fuel price liberalisation and a drop in food subsidy also helped the NDA government in raising the revenue.

Under NDA, fiscal deficit positions of states worsened. The report said the state fiscal deficit has continued to rise sharply in recent years even as developmental expenditure has failed to increase. The report blamed loan waivers granted by states as one of the reasons for poor fiscal discipline.

Moreover, a greater share of untied funds (central funds allocated for states) under 14^th finance commission and compensation to states for losses accrued from the implementation of GST forced the NDA government to reduce centrally sponsored schemes from 72 to 27, the report said.