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

What is Fuelling Power Sector Losses?

Tanvi Vipra - May 10, 2024

Last week, the Power Finance Corporation reported that state-owned power distribution companies across the country made financial losses amounting to Rs 68,832 crore in 2022-23. This is four times higher than the losses witnessed in 2021-22, and roughly equivalent to the annual budget of a state like Uttarakhand. This blog examines some of the causes and implications of such losses.

Overview of financial losses

For several years now, electricity distribution companies (discoms), which are mostly state-owned, have witnessed steep financial losses. Between 2017-18 and 2022-23, losses accumulated to over three lakh crore rupees. In 2021-22, discom witnessed substantial reduction in their losses, primarily because states released 1.54 lakh rupees in subsidies to clear pending dues. State governments provide discoms with subsidies, so that domestic and agricultural consumers receive affordable power. These payments are typically delayed which creates cash flow constraints, and leads to an accumulation of debt. In addition, costs incurred by discoms in 2021-22 remained unchanged.

Note: Data from 2020-21 onwards does not include Odisha, and Dadra & Nagar Haveli and Daman and Diu since their distribution function was privatised in 2020-21. Data for Ladakh is available from 2021-22 onwards. Data for Jammu and Kashmir is not available. The Delhi Municipal Council Distribution Utility has been included from 2020-21 onwards.
Sources: Power Finance Corporation reports for various years; PRS.

As of 2022-23, losses have increased again to reach Rs 68,832 crore. This increase has been driven by rising costs. At a per unit level, the cost of supplying one kilowatt of electricity rose from 7.6 rupees in 2021-22, to 8.6 rupees in 2022-23 (See Table 1).

Table 1: Financial details of state-owned power distribution companies

Details	2019-20	2020-21	2021-22	2022-23
Average cost of supplying power (ACS)	7.4	7.7	7.6	8.6
Average revenue realised (ARR)	6.8	7.1	7.3	7.8
Per unit loss (ACS-ARR)	0.6	0.6	0.3	0.7
Total losses (in Rs crore)	-60,231	-76,899	-16,579	-68,832

Purchase of electricity from generation companies (gencos) forms about 70% of a discom’s total costs, and coal is the primary source for generating electricity. The following chain of events took place in 2022-23: (i) consumer demand for electricity rose by 10% over the previous year, as compared to a 6% year-on-year increase in the past 10 years, (ii) coal had to be imported to meet the increased demand, and (iii) global coal prices were elevated.

Coal imported at elevated prices to keep up with rising electricity demand

In 2022-23, demand for electricity increased by 10% over 2021-22. Between 2008-09 and 2018-19, demand increased at an annual growth rate (CAGR) of 6%. Electricity demand grew as the economy grew (at 7%), and largely came from domestic and agricultural consumers. These consumer categories account for 54% of the total electricity sales, and their demand rose by 7%.

Sources: Central Electricity Regulatory Commission; PRS.

Electricity cannot be stored at scale, which means that generation must be scheduled depending on anticipated demand. The Central Electricity Authority anticipates annual demand for each year. It estimated that demand in 2022-23 would be at 1,505 billion units. However, the actual demand was higher than anticipated in the first few months of 2022-23 (See Figure 3).

To meet this demand, electricity generation had to be ramped up. Coal stocks had already depleted from 29 million tonnes in June 2021 to eight million tonnes in September 2021, on account of high demand in 2021-22. To ensure uninterrupted supply of power, the Ministry of Power directed gencos to import coal. The Ministry noted that without imports, widespread power cuts and blackouts would have occurred.

Sources: Load Generation Balance Report 2022 and 2023, Central Electricity Authority; PRS.

Coal imports rose by about 27 million tonnes in 2022-23. While this constituted only 5% of the overall coal used in the sector, the price at which it was imported significantly impacted the sector. In 2021-22, India imported coal at an average price of Rs 8,300 per tonne. This rose to Rs 12,500 per tonne in 2022-23, a 51% increase. Coal was primarily imported from Indonesia, and prices shot up due to the Russia-Ukraine war, and demand surge by countries like India and China.

Sources: Ministry of Power; Ministry of Statistics and Programme Implementation; PRS.

Coal import situation going forward

In January 2023, the Ministry of Power advised gencos to import 6% of the required coal, to ensure sufficient stock until September 2023. It noted that due to floods and variable rainfall in various parts of the country, hydro generation capacity reduced by about 14%. This put additional burden on coal based thermal generation in 2023-24. Following this, in October 2023, the Ministry directed all gencos to continue using at least 6% imported coal until March 2024.

Sources: Ministry of Coal; PRS.

Structural issues in the power sector and its impact on state finances

Discoms witness persistent financial losses due to certain structural issues. Their costs are typically high because of old contracts with generation companies (gencos). Power purchase costs in these contracts do not account for production efficiencies over the years, and costs remain unchanged. Tariffs are only revised every few years, to ensure that consumers are protected from supply chain shocks. As a result, costs are carried forward for a few years. In addition, discoms sell electricity to certain consumers such as agricultural and residential consumers, below cost. This is supposed to primarily be recovered through subsidy grants provided by state governments. However, states often delay subsidy payments leading to cash flow issues, and accumulation of debt. In addition, tariff recovery from the power sold is not optimal.

Losses reported in the generation sector have also increased. In 2022-23, state-owned gencos reported losses worth Rs 7,175 crore, as compared to the Rs 4,245 crore in 2021-22. Rajasthan accounted for 87% of these, at Rs 6,278 crore. Note that under the Late Payment Surcharge Rules, 2022, discoms are required to make upfront payments to gencos.

Risk to state finances

Persistent financial losses, high debt and guarantees extended by states continue to pose a risk to state finances. These are contingent liabilities for state governments, i.e., in the event a discom is unable to repay its debt, the state would have to take it over.

Several such schemes have been introduced in the past to bail discoms out (See Table 2). As of 2022-23, discoms have an outstanding debt worth Rs 6.61 lakh crore, 2.4% of the national GDP. Debt is significantly high in states such as Tamil Nadu (6% of GSDP), Rajasthan (6% of GSDP), and Uttar Pradesh (3% of GSDP). Previous Finance Commissions have recognised that strengthening discom finances is key in minimising the risk to state finances.

Table 2: Key government schemes for the turnaround of the distribution sector over the years

Year	Scheme	Details
2002	Bailout Package	States take over the debt of state electricity boards worth Rs 35,000 crore, 50% waiver of interest payable by state electricity boards to central PSUs
2012	Financial Restructuring Package	States take over 50% of the outstanding short-term liabilities worth Rs 56,908 crore
2015	Ujwal Discom Assurance Yojana (UDAY)	States take over 75% of the debt of discoms worth Rs 2.3 lakh crore and also provide grants for any future losses
2020	Liquidity Infusion Scheme	Discoms get loans worth Rs 1.35 lakh crore from Power Finance Corporation and REC Limited to settle outstanding dues of generators, state governments provide guarantee
2022	Revamped Distribution Sector Scheme	Central government to provide result-linked financial assistance worth Rs 97,631 crore for strengthening of supply infrastructure

Sources: NITI Aayog, Press Releases of the Ministry of Power; PRS.

For more details on the impact of discom finances on state finances, see here. For more details on structural issues in the power distribution sector, see here.

ANNEXURE

Table 3: Cost and revenue structure of discoms on energy sold basis (in Rs per kw)

Details	2019-20	2020-21	2021-22	2022-23
Average cost of supplying power (ACS)	7.4	7.7	7.6	8.6
of which
Cost of procuring power	5.8	5.9	5.8	6.6
Average revenue realised (ARR)	6.8	7.1	7.3	7.8
of which
Revenue from sale of power	5.0	4.9	5.1	5.5
Tariff subsidy	1.3	1.4	1.4	1.5
Regulatory income and revenue grant under UDAY	0.3	0.1	0.0	0.2
Per unit loss	0.6	0.6	0.3	0.7
Total financial losses	-60,231	-76,899	-16,579	-68,832

Sources: Power Finance Corporation reports for various years; PRS.

Table 4: State-wise profit/loss of power distribution companies (in Rs crore)

State/UT	2017-18	2018-19	2019-20	2020-21	2021-22	2022-23
Andaman and Nicobar Islands	-605	-645	-678	-757	-86	-76
Andhra Pradesh	-546	-16,831	1,103	-6,894	-2,595	1,211
Arunachal Pradesh	-429	-420	NA	NA	NA	NA
Assam	-259	311	1,141	-107	357	-800
Bihar	-1,872	-1,845	-2,913	-2,966	-2,546	-10
Chandigarh	321	131	59	79	-101	NA
Chhattisgarh	-739	-814	-571	-713	-807	-1,015
Dadra & Nagar Haveli and Daman & Diu	312	-149	-125	NA	NA	NA
Delhi	NA	NA	NA	98	57	-141
Goa	26	-121	-276	78	117	69
Gujarat	426	184	314	429	371	147
Haryana	412	281	331	637	849	975
Himachal Pradesh	-44	132	43	-153	-141	-1,340
Jharkhand	-212	-730	-1,111	-2,556	-1,721	-3,545
Karnataka	-2,439	-4,889	-2,501	-5,382	4,719	-2,414
Kerala	-784	-135	-270	-483	98	-1,022
Ladakh	NA	NA	NA	NA	-11	-57
Lakshadweep	-98	-120	-115	-117	NA	NA
Madhya Pradesh	-5,802	-9,713	-5,034	-9,884	-2,354	1,842
Maharashtra	-3,927	2,549	-5,011	-7,129	-1,147	-19,846
Manipur	-8	-42	-15	-15	-22	-146
Meghalaya	-287	-202	-443	-101	-157	-193
Mizoram	87	-260	-291	-115	-59	-158
Nagaland	-62	-94	-477	-17	24	33
Puducherry	5	-39	-306	-23	84	-131
Punjab	-2,760	363	-975	49	1,680	-1,375
Rajasthan	-11,314	-12,524	-12,277	-5,994	2,374	-2,024
Sikkim	-29	-3	-179	-34	NA	71
Tamil Nadu	-12,541	-17,186	-16,528	-13,066	-9,130	-9,192
Telangana	-6,697	-9,525	-6,966	-6,686	-831	-11,103
Tripura	28	38	-104	-4	-127	-193
Uttar Pradesh	-5,269	-5,902	-3,866	-10,660	-6,498	-15,512
Uttarakhand	-229	-808	-323	-152	-21	-1,224
West Bengal	-871	-1,171	-1,867	-4,261	1,045	-1,663
State Sector	-56,206	-80,179	-60,231	-76,899	-16,579	-68,832
Dadra & Nagar Haveli and Daman & Diu	NA	NA	NA	242	148	104
Delhi	109	657	-975	1,876	521	-76
Gujarat	574	307	612	655	522	627
Odisha	NA	NA	-842	-853	940	746
Maharashtra	NA	590	1,696	-375	360	42
Uttar Pradesh	182	126	172	333	256	212
West Bengal	658	377	379	398	66	-12
Private Sector	1,523	2,057	1,042	2,276	2,813	1,643
All-India	-54,683	-78,122	-59,189	-77,896	-13,766	-67,189

Note: Minus sign (-) indicates loss; Dadra & Nagar Haveli and Daman & Diu discom was privatised on April 1, 2022; New Delhi Municipal Council Distribution utility has been added from 2020-21 onwards.
Sources: Power Finance Corporation reports for various years; PRS.

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

What is Fuelling Power Sector Losses?

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