These lines from the latest research report of JP Morgan caught my eye:
At some level, today’s move was not surprising as indirect tax growth is presently running 5.8% oya (till September) compared to a budgeted growth of 25.9%. Furthermore, this year’s disinvestment target is getting increasingly challenging to completely meet. Therefore the resources raised by today’s move – while small in the grand scheme of things — would reduce the Planned expenditure cuts needed to meet this year’s fiscal deficit target of 4.1% of GDP. But we continue to believe the government will do whatever is needed on the expenditure side to meet its deficit target.
The report dealt with the decision of the Indian government to raise excise duties on petroleum products. I could not believe that indirect tax revenues were running at 5.8% (YTD) compared to the budgeted increase of 25.9%. Even if disinvestment starts now and happens in the next four months, one is not sure if it would meet the government’s target.
It is too tempting to say ‘I told you so’ and I will say it. In July, when the Finance Minister announced the budget, I wrote that the government was too hasty and wrong in accepting the previous government’s budget target of 4.1%. Unfortunately, so far, events have proven me correct. There is no joy in it, however.
The JP Morgan Research Report goes on to add the following:
But we continue to believe the government will do whatever is needed on the expenditure side to meet its deficit target.
I am not sure if one should be pleased with that. First, it is an uncomfortable reminder of Mario Draghi’s ‘whatever it takes’. The Eurozone economy is not exactly in the pink of health two years after he uttered those famous words.
Second, if the government does whatever it can to stick to the 4.1% budget deficit ratio target, the first question that pops up in my head is the question of what it does to economic growth? Plus, will there be accounting gimmicks that the UPA government deployed?
There was a Press Release by the Ministry of Finance on 7 November that the Central Board of Direct Taxes (CBDT) that almost confessed (as correctly noted by my friend) that the tax administration regime hitherto was adversarial. The question is whether the government’s budget woes would keep the tax administration adversarial.
Surprised that not many are asking these questions. They should.