Union Budget 2020-21: Are the fiscal targets realistic?

Gayatri Mann , Suyash Tiwari - February 6, 2020

Today, a general discussion on the Union Budget 2020-21 is being held in both Houses of Parliament. In the budget, the government presented the estimates of the money it expects to spend on various ministries, and how much money will be raised from different sources such as levy of taxes and dividends from public enterprises in 2020-21. In addition, the budget presented the revised estimates made by the government for the year 2019-20 in comparison to the estimates it had given to Parliament in the previous year’s budget. The budget also gave an account of how much money the government actually raised and spent in 2018-19.

What are revised estimates?

Some of the estimates made by the government might change during the course of the year. For instance, once the year gets underway, some ministries may need more funds than what was actually allocated to them in the budget, or the receipts expected from certain sources might change. Such deviations from the budget estimates get reflected in the figures released by the government at later stages as part of the subsequent budgets. Once the year ends, the actual numbers are audited by the Comptroller and Auditor General of India (CAG), post which they are presented to Parliament with the upcoming budget, i.e. two years after the estimates are made.

For instance, estimates for the year 2019-20 were presented as part of the 2019-20 budget in July 2019. In the 2020-21 budget (February 2020), the government presented 2019-20’s revised estimates based on the actual receipts and expenditure accounted so far during the year and estimations made for the remaining 2-3 months.

Is there a way to find out the government’s actual receipts or expenditure mid-year?

The actual receipts and expenditure accounts of the central government are maintained by the Controller General of Accounts (CGA), Ministry of Finance on a monthly basis. On January 31, 2020, the CGA updated the accounts figures for the period April to December 2019. Thus, we have unaudited actuals for the first nine months of the financial year.

How do the actual figures for the year 2019-20 so far compare with the revised estimates?

Table 1 gives the revised estimates presented by the central government for the year 2019-20 and the monthly account figures maintained by the CGA for the nine-month period April to December 2019. The difference between these two figures gives us the three-month target that the government will have to meet by March 2020 to reach its revised estimates.

Till December 2019, the government has spent Rs 21.1 lakh crore, which is 78% of the revised estimates for 2019-20. While the expenditure has reached 78% of the target, so far, the government has been able to generate only Rs 11.8 lakh crore or 61% of the receipts (excluding borrowings) for the year 2019-20. This implies that the receipts will have to grow at a rate of 41% in the three-month period January-March 2020 to meet the revised estimates of Rs 19.3 lakh crore. So far, receipts have grown at a rate of 4%.

Table 1: Budget at a Glance – Comparison of 2019-20 revised estimates with Apr-Dec 2019 figures (Rs crore)

Budget at a Glance	Actuals	Revised	Nine-month period	Three-month target	Growth rate so far	Growth target
Budget at a Glance	2018-19	2019-20	Apr-Dec 2019	Jan-Mar 2020	% change (Apr-Dec 2018 to Apr-Dec 2019)	% change (Jan-Mar 2019 to Jan-Mar 2020)
Revenue Expenditure	20,07,399	23,49,645	18,54,125	4,95,520	14%	28%
Capital Expenditure	3,07,714	3,48,907	2,55,522	93,385	21%	-3%
Total Expenditure	23,15,113	26,98,552	21,09,647	5,88,905	15%	22%
Revenue Receipts	15,52,916	18,50,101	11,46,897	7,03,204	6%	50%
Capital Receipts	1,12,779	81,605	31,025	50,580	-33%	-24%
of which Disinvestment	94,727	65,000	18,100	46,900	-47%	-22%
Total Receipts (without borrowings)	16,65,695	19,31,706	11,77,922	7,53,784	4%	41%
Revenue Deficit	4,54,483	4,99,544	7,07,228	-2,07,684
Fiscal Deficit	6,49,418	7,66,846	9,31,725	-1,64,879
Primary Deficit	66,770	1,41,741	5,07,411	-3,65,670

Sources: Union Budget 2020-21; Controller General of Accounts, Ministry of Finance; PRS.

How do the actual tax receipts fare in comparison to the revised estimates of 2019-20?

A lower than estimated growth in nominal GDP has also affected the tax receipts of the government during the year. The 2019-20 budget estimated the nominal GDP to grow at 12% over the previous year, whereas the latest estimates suggest this growth rate to be 7.5% in 2019-20. The revised estimates for 2019-20 show gross tax receipts of Rs 21.6 lakh crore (includes states’ share). Till December 2019, tax receipts of Rs 13.8 lakh crore has been collected, which is 64% of the target. The tax receipts will have to grow at 19% in the three-month period January-March 2020 to meet the target. Table 2 shows similar comparison for the various taxes and also for the tax receipts devolved to states. While the budget estimated a growth in receipts from all major taxes, receipts from taxes such as corporation tax (-14%), union excise duties (-2%), and customs (-12%) have declined during the period Apr-Dec 2019.

Table 2: Tax receipts – Comparison of 2019-20 revised estimates with Apr-Dec 2019 figures (Rs crore)

Revenue Receipts	Actuals	Revised	Nine-month period	Three-month target	Growth rate so far	Growth target
Revenue Receipts	2018-19	2019-20	Apr-Dec 2019	Jan-Mar 2020	% change (Apr-Dec 2018 to Apr-Dec 2019)	% change (Jan-Mar 2019 to Jan-Mar 2020)
Gross Tax Revenue	20,80,465	21,63,423	13,83,035	7,80,388	-3%	19%
Devolution to States	7,61,454	6,56,046	4,76,113	1,79,933	-2%	-34%
Net Tax Revenue	13,17,211	15,04,587	9,04,944	5,99,643	-3%	57%
Dividend and Profits	1,13,420	1,99,893	1,61,979	37,914	175%	-30%
Other Non-tax Revenue	1,22,284	1,45,620	79,974	65,646	-10%	96%
Revenue Receipts	15,52,916	18,50,101	11,46,897	7,03,204	6%	50%

Note: Figures for income tax exclude receipts from the Securities Transaction Tax.

Sources: Receipts Budget, Union Budget 2019-20; Controller General of Accounts, Ministry of Finance; PRS.

If we look at sources of receipts other than taxes, non-tax revenue during Apr-Dec 2019 is Rs 2.4 lakh crore, i.e. 69% of the estimated Rs 3.5 lakh crore. Disinvestment receipts till date amounted to Rs 18,100 crore, i.e. 17% of the budget target of Rs 1.05 lakh crore. Though the investment target has been revised down to Rs 65,000 crore, it implies that Rs 47,000 crore would need to be raised in the next two months.

How does this impact the borrowings of the government?

When the expenditure planned by the government is more than its receipts, the government finances this gap through borrowings. This gap is known as fiscal deficit and equals the borrowings required to be made for that year. Given lower than expected receipts, the government has had to borrow more money than it had planned for. Borrowings or fiscal deficit of the government, till December 2019, stands at Rs 9.3 lakh crore, which is 22% higher than the revised estimate of Rs 7.7 lakh crore. Note that with three months still remaining in the financial year, fiscal deficit may further increase, in case receipts are less than expenditure.

When we look at fiscal deficit as a percentage of GDP, the 2019-20 budget estimated the fiscal deficit to be at 3.3% of GDP. This has been revised upward to 3.8% of GDP. However, till December 2019, fiscal deficit for the year 2019-20 stands at 4.6% of GDP (taking the latest available GDP figures into account, i.e. the First Advance Estimates for 2019-20 released in January 2020). This increase in fiscal deficit as a percentage of GDP is because of two reasons: (i) an increase in borrowings as compared to the budget estimates, and (ii) a decrease in GDP as compared to the estimate made in the budget. The latter is due to a lower than estimated growth in nominal GDP for the year 2019-20. The 2019-20 budget estimated the nominal GDP to grow at 12% over the previous year, whereas the latest estimates suggest this growth rate to be 7.5% in 2019-20.

Note that, in addition to the expenditure shown in the budget, the government also spends through extra budgetary resources. These resources are raised by issuing bonds and through loans from the National Small Savings Fund (NSSF). The revised estimates for 2019-20 show an expenditure of Rs 1,72,699 crore through such extra-budgetary resources. This includes an expenditure of Rs 1,10,000 crore by the Food Corporation of India financed through loans from NSSF. Since funds borrowed for such expenditure remain outside the budget, they do not get factored in the deficit and debt figures. If borrowings made in the form of extra-budgetary resources are also taken into account, the fiscal deficit estimated for the year 2019-20 would increase from 3.8% of GDP to 4.6% of GDP due to extra-budgetary borrowings of Rs 1,72,699 crore. This does not account for further slippage if the targeted revenue does not materialise.

Policy

Petrol and Diesel Prices

Shashank Srivastava - October 21, 2021

In the past few months, retail prices of petrol and diesel have consistently increased to all-time high levels. On October 16, 2021, the retail price of petrol in Delhi was Rs 105.5 per litre, and that of diesel was Rs 94.2 per litre. In Mumbai, these prices were even higher at Rs 111.7 per litre and Rs 102.5 per litre, respectively.

The difference in fuel retail prices in the two cities is due to the different tax rates levied by the respective state governments on the same products. In this blog post, we look at the tax components in the price structure of petrol and diesel, the variation in these across states, and the major changes in taxation of these products in the recent years. We also discuss changes in the retail prices over the past few years and how it compares vis-à-vis the global crude oil prices.

Taxes make up around 50% of the retail price

Public sector Oil Marketing Companies (OMCs) revise the retail prices of petrol and diesel in India on a daily basis, according to changes in the price of global crude oil. The price charged to dealers includes the base price set by OMCs and the freight price. As on October 16, 2021, the price charged to dealers makes up 42% of the retail price in the case of petrol, and 49% of the retail price in the case of diesel (Table 1).

The break-up of retail prices of petrol and diesel in Delhi (as on October 16, 2021), shows that around 54% of the retail price of petrol comprises central and states taxes. In the case of diesel, this is close to 49%. The central government taxes the production of petroleum products, while states tax their sale. The central government levies an excise duty of Rs 32.9 per litre on petrol and Rs 31.8 per litre on diesel. These make up 31% and 34% of the current retail prices of petrol and diesel, respectively.

Table 1: Break-up of petrol and diesel retail prices in Delhi (as on October 16, 2021)

Component	Petrol		Diesel
Component	Rs/litre	% of retail price	Rs/litre	% of retail price
Price Charged to Dealers	44.4	42%	46.0	49%
Excise Duty (levied by centre)	32.9	31%	31.8	34%
Dealer Commission (average)	3.9	4%	2.6	3%
Sales Tax/ VAT (levied by state)	24.3	23%	13.8	15%
Retail Price	105.5	100%	94.2	100%

Note: Delhi levies 30% VAT on petrol and 16.75% VAT on diesel.
Sources: Indian Oil Corporation Limited; PRS.

While excise duty rates are uniform across the country, states levy sales tax/ Value Added Tax (VAT) which varies across states. For instance, Odisha levies 32% VAT on petrol, while Uttar Pradesh levies 26.8% VAT or Rs 18.74 per litre, whichever is higher. Refer to the table 3 in annexure for sales taxes/VAT levied across the country. The figure below shows the different tax rates levied by states on petrol and diesel. In addition to the tax rates shown in the graph, many state governments, such as Tamil Nadu, also levy certain additional levies such as cess (Rs 11.5 per litre).

Figure 1: Sales tax/VAT rates levied by states on petrol and diesel (as on October 1, 2021)

Note: The rates shown for Maharashtra are averages of the rates levied in the Mumbai-Thane region and in the rest of the state. Only percentages are being shown in this graph.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Note that unlike excise duty, sales tax is an ad valorem tax, i.e., it does not have a fixed value, and is charged as a percentage of the price of the product. This implies that while the value of excise duty component of the price structure is fixed, the value of the sales tax component is dependent on the other three components, i.e., price charged to dealers, dealer commission, and excise duty.

Retail prices in India compared to global crude oil price

India’s dependence on imports for consumption of petroleum products has increased over the years. For instance, in 1998-99, net imports of petroleum products were 69% of the total consumption, which increased to around 95% in 2020-21. Because of a large share of imports in the domestic consumption, any change in the global price of crude oil has a significant impact on the domestic prices of petroleum products. The two figures below show the trend in the price of global crude oil and retail prices of petrol and diesel in India, over the last nine years.

Figure 2: Trend of the global crude oil price vis-à-vis retail prices of petrol and diesel (in Delhi)

Note: Global Crude Oil Price is for the Indian basket. Petrol and diesel retail prices are for Delhi. Figures reflect average monthly price.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Between June 2014 and October 2018, the retail selling prices did not adhere to change in global crude oil prices. The global prices fell sharply between June 2014 and January 2016, and then subsequently increased between February 2016 and October 2018. However, the retail selling prices remained stable during the entire period. This disparity in the change in global and Indian retail prices was because of the subsequent changes in taxes. For instance, central taxes were increased by Rs 11 and 13 between June 2014 and January 2016 on petrol and diesel respectively. Subsequently, taxes were decreased by four rupees between February 2016 and October 2018 for petrol and diesel. Similarly, during January-April 2020, following a sharp decline of 69% in the global crude oil prices, the central government increased the excise duty on petrol and diesel by Rs 10 per litre and Rs 13 per litre, respectively in May 2020.

Sharp increase in excise duty collections

As a result of the increase in excise duty in May 2020, the excise duty collection increased sharply from Rs 2.38 lakh crore in 2019-20 to Rs 3.84 lakh crore in 2020-21. The year-on-year growth rate of excise duty collection increased from 4% in 2019-20 to 67% in 2020-21. However, sales tax collections (from petroleum products) during that period remained more or less constant (Figure 3).

Figure 3: Excise duty and sales tax/ VAT collection from petroleum products (in Rs lakh crore)

Note: The excise duty component in the figure includes cess on crude oil.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Share of states in excise duty has decreased over the years

Though central taxes (such as excise duty) are levied by the centre, it has only 59% of the revenue from these taxes. The remaining 41% of the revenue is required to be devolved to the state governments as per the recommendations of the 15^th Finance Commission. These devolved taxes are un-tied in nature, states can spend them according to their own discretion. The excise duty levied on petrol and diesel consists of two broad components: (i) tax component (i.e., basic excise duty), and (ii) cess and surcharge component. Of this, only the revenue generated from the tax component is devolved to states. Revenue generated by the centre from any cess or surcharge is not devolved to states. Currently, the Agriculture Infrastructure and Development Cess, and the Road and Infrastructure Cess are levied on the sale of petrol and diesel in addition to the surcharge.

In the Union Budget 2021-22, the Agriculture Infrastructure and Development cess on petrol and diesel was announced at Rs 2.5 per litre and Rs 4 per litre, respectively. However, simultaneously, the basic excise duty and surcharge were reduced by equal amounts, so that the overall rate remains the same. Essentially, this provision shifted a revenue of Rs 1.5 per litre of petrol and Rs 3 per litre of diesel from the states’ divisible pool of taxes to the cess and surcharge revenue, which is entirely with the centre. Similarly, over the last four years, the share of tax component in the excise duty has decreased by 40% in petrol and 59% in diesel (table 2). At present, majority of the excise duty levied on petrol (96%) and diesel (94%) is in the form of cess and surcharge, due to which it is entirely under the centre’s share (Table 2).

Table 2: Break up of excise duty (Rs per litre)

Excise duty	Petrol				Diesel
Excise duty	Apr-17	% share of total	Feb-21	% share	Apr-17	% share of total	Feb-21	% share
Tax (devolved to states)	9.48	44%	1.4	4%	11.33	65%	1.8	6%
Cess and surcharge (centre)	12	56%	31.5	96%	6	35%	30	94%
Total	21.48	100%	32.9	100%	17.33	100%	31.8	100%

Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS

As a result, the devolution to states out of the excise duty has declined over the last four years. Even though the excise duty collections have increased sharply between 2019-20 and 2020-21, the devolved component has declined from Rs 26,464 to Rs 19,578 (revised estimate) in the same period.

Annexure

Table 3: Sales taxes/VAT rates levied on petrol and diesel across states (as on October 1, 2021)

State/UT	Petrol	Diesel
Andaman & Nicobar Islands	6%	6%
Andhra Pradesh	31% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess an d Vat thereon	22.25% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess and Vat thereon
Arunachal Pradesh	20%	13%
Assam	32.66% or Rs.22.63 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre	23.66% or Rs.17.45 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre
Bihar	26% or Rs 16.65/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax)	19% or Rs 12.33/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax)
Chandigarh	Rs.10/KL cess +22.45% or Rs.12.58/Litre whichever is higher	Rs.10/KL cess + 14.02% or Rs.7.63/Litre whichever is higher
Chhattisgarh	25% VAT + Rs.2/litre VAT	25% VAT + Rs.1/litre VAT
Dadra and Nagar Haveli and Daman and Diu	20% VAT	20% VAT
Delhi	30% VAT	Rs.250/KL air ambience charges + 16.75% VAT
Goa	27% VAT + 0.5% Green cess	23% VAT + 0.5% Green cess
Gujarat	20.1% VAT+ 4% Cess on Town Rate & VAT	20.2% VAT + 4 % Cess on Town Rate & VAT
Haryana	25% or Rs.15.62/litre whichever is higher as VAT+5% additional tax on VAT	16.40% VAT or Rs.10.08/litre whichever is higher as VAT+5% additional tax on VAT
Himachal Pradesh	25% or Rs 15.50/Litre- whichever is higher	14% or Rs 9.00/Litre- whichever is higher
Jammu & Kashmir	24% MST+ Rs.5/Litre employment cess, Reduction of Rs.0.50/Litre	16% MST+ Rs.1.50/Litre employment cess
Jharkhand	22% on the sale price or Rs. 17.00 per litre , which ever is higher + Cess of Rs 1.00 per Ltr	22% on the sale price or Rs. 12.50 per litre , which ever is higher + Cess of Rs 1.00 per Ltr
Karnataka	35% sales tax	24% sales tax
Kerala	30.08% sales tax+ Rs.1/litre additional sales tax + 1% cess	22.76% sales tax+ Rs.1/litre additional sales tax + 1% cess
Ladakh	24% MST+ Rs.5/Litre employment cess, Reduction of Rs.2.5/Litre	16% MST+ Rs.1/Litre employment cess , Reduction of Rs.0.50/Litre
Lakshadweep	Nil	Nil
Madhya Pradesh	33 % VAT + Rs.4.5/litre VAT+1%Cess	23% VAT+ Rs.3/litre VAT+1% Cess
Maharashtra – Mumbai, Thane , Navi Mumbai, Amravati & Aurangabad	26% VAT+ Rs.10.12/Litre additional tax	24% VAT+ Rs.3.00/Litre additional tax
Maharashtra (Rest of State)	25% VAT+ Rs.10.12/Litre additional tax	21% VAT+ Rs.3.00/Litre additional tax
Manipur	32% VAT	18% VAT
Meghalaya	20% or Rs15.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge)	12% or Rs9.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge)
Mizoram	25% VAT	14.5% VAT
Nagaland	25% VAT or Rs. 16.04/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess	16.50% VAT or Rs. 10.51/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess
Odisha	32% VAT	28% VAT
Puducherry	23% VAT	17.75% VAT
Punjab	Rs.2050/KL (cess)+ Rs.0.10 per Litre (Urban Transport Fund) + 0.25 per Litre (Special Infrastructure Development Fee)+24.79% VAT+10% additional tax on VAT	Rs.1050/KL (cess) + Rs.0.10 per Litre (Urban Transport Fund) +0.25 per Litre (Special Infrastructure Development Fee) + 15.94% VAT+10% additional tax on VAT
Rajasthan	36% VAT+Rs 1500/KL road development cess	26% VAT+ Rs.1750/KL road development cess
Sikkim	25.25% VAT+ Rs.3000/KL cess	14.75% VAT + Rs.2500/KL cess
Tamil Nadu	13% + Rs.11.52 per litre	11% + Rs.9.62 per litre
Telangana	35.20% VAT	27% VAT
Tripura	25% VAT+ 3% Tripura Road Development Cess	16.50% VAT+ 3% Tripura Road Development Cess
Uttar Pradesh	26.80% or Rs 18.74/Litre whichever is higher	17.48% or Rs 10.41/Litre whichever is higher
Uttarakhand	25% or Rs 19 Per Ltr whichever is greater	17.48% or Rs Rs 10.41 Per Ltr whichever is greater
West Bengal	25% or Rs.13.12/litre whichever is higher as sales tax+ Rs.1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)	17% or Rs.7.70/litre whichever is higher as sales tax + Rs 1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)

Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

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Union Budget 2020-21: Are the fiscal targets realistic?

Petrol and Diesel Prices

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