Analysis of Union Budget 2014-15


Our mentality of gauging the any programme based on financial outlay is deeply ingrained in our psyche & is not going away anytime soon. This basically means we judge everything in budget by amount of money allocated to different schemes. Higher the allocation and better it is. On the other hand we also look out for tax rebate. Lower the tax & higher rebate, more it is better for us. We didn’t care much about what was actual output? How effective money was utilised? Did it created any impact? Or how much is imbalance (Difference between earning and spending)? Nor do the common men is concerned about the amount of outstanding loan or % of total spending government is spending on the interest payment?

 There are several reasons for all of above. First of all we think it’s not directly going to impact it. Secondly financial literacy is very low especially when concerning the too much technical matters like budget etc. Thirdly Finance Minister Play around the numbers and terms that it become even difficult for an expert to gauge the correct figures.

Also the level of debate on budget is parliament is usually very short and devoid of serious discussion on core issue. The debate focused on peripheral issues like why some scheme is not allocated Rs 100 Crore more or why budget was reduced for other scheme. This was evident from post-budget media debates and discussion where it revolved around the 3-4 issues which hardly covered more than Rs 500-1000 Crores. But total budget was for Rs 18 Lakh Crores!

To address the above concerns and to make more people engage in broader budgetary process we need to make things simple. The jugglery played by all the finance ministers need to be stopped and people need to informed in simple terms things like – what is total budget, how much is government paying in Interest Payment , How much is Subsidy , how much is budget going for running the government services and payment of salaries & how much is government borrowing from market. Also how much we are investing in education (in % terms, increment from last term and what we are planning to achieve from that spending etc.). All these need to presented in layman’s language not in some excel sheets. This will also set the ground for effective debate in parliament. Many MP shy away from taking part in debate as they don’t understand all these things (Its truth!). For this we need to set-up a Parliament Budgetary Office which can do all analysis in non-partisan basis.

Lack of scrutiny of output and impact created by schemes is one of reason for underdevelopment, corruption and ineffective implementation. We need to focus on how to create more from same bucks. Neither any government organisation nor any independent organisation work on these fronts. Independent Evaluation Office (IEO) created last years is one such initiative. But we are not sure how it would perform and whether government would take its recommendation seriously. One of first report of IEO is on planning commission in which it has recommended to take away financial allocation function and restructure it into a think-tank for government mainly working in areas of policy & knowledge sharing.  

Now coming to Main Point, what are key take away from this budget. Here are some of my observations:  

1. Total Expenditure (TE) for Budget =Rs 1794892 (~ 8% increase from last BE & 13% increase from RE)

Revenue Expenditure is Rs 1568111 (87% of TE)

Capital Expenditure is Rs 226781 (13% of TE)

So basically only around 13% is going towards the investment in creating new assets and major portion of our expenditure is going towards the everyday running of government, interest payment, subsidy etc.  

2. Borrowing & Other liabilities = Rs 531177 Cr. ~30 % of TE (This basically means out of Rs 100 spend, government is going to borrow Rs 30 from market. This would add up to existing debt and we would continue to pay interest payment on this amount & please not we are not investing it in creating any new assets).

& how much are we paying toward the Interest Payment =Its 24% of Total Expenditure. This is almost double of Capital Expenditure. Almost all of government borrowing is going only in interest payment.

3. Just to give a glimpse of assumptions used to arrive at these numbers. You can guess credibility of this number for yourself.

*”GDP for BE 2014-2015 has been projected at `12876653 crore assuming 13.4% growth over the Advance Estimates”

So considering the real growth rate of 5.4 % as FM said in Budget. So Government is assuming 8% Inflation in their numbers. Now don’t complain again about high inflation. This is government’s official target for inflation. Whatever be RBI’s target (Monetary Policy Board and Monetary Policy Frameworks blah blah) & policies it doesn’t matter much.

4. Drastic Increase in Capital receipts target: There is 245% increase in other capital Receipts (mainly comprises the licensing fees and disinvestment proceeding). Rs 63425 Crore is target for this Year. The last year it was proposed at Rs 55814 but actual was just Rs 25841 (46%) of budget estimate.

5. Something about assumptions about tax receipt. The Assumed increase in current years is 18% over the last years while last year increase was just 12%. This despite the fact that a number of extra tax exemptions were given. As per budget, tax loss from only direct tax concession is Rs 22,000 Cr.

But then our FM says “I have decided to accept this target as a challenge. One fails only when one stops trying.”

6. Few Words about Subsidies.

Total Allocation for subsidies = Rs 260658 Cr. i.e. 15% of Total Expenditure (Don’t get fooled whey the express the number in terms of % of GDP!)

Off course, this is higher than last year. (Hopefully it includes deferred component of last year but who know same will not be done this year also)

So we are paying about 40% of Expenditure in Interest payments and subsidies.

7.  Loans to State and U.T. Governments under the Capital Expenditure.

Last year there was drastic reduction of about Rs 3400 Cr. So this basically means States are now borrowing more from market, usually at higher rate than centre. This would continue in current fiscal year.

8. There is major restructuring of Central Sector Schemes (CSS). So Central plan is drastically reduced & Central assistance for State Plans has increased correspondingly. This would provide more flexibility to state in designing schemes and spend fund to meet their specific requirement within broader parameters.

Last year there was one subhead “Direct release under Central Plan to State/District level autonomous bodies/implementing agencies” (of amount Rs 107015 Cr). This has been reduced to nil and same amount is being transferred to Central Assistance for State Plans.

So direct devolution of fund to third tier of governance is thing of past, at least for now.

9. Budget Support for PSU has decreased by ~40% (from 356493 last year to Rs 216760 CFY) basically a huge saving by Cutting Budgetary support to PSU and this is where the money for newly introduced token scheme and tax exemption is going to come.

10. You must have observed some around 30 odd new schemes in this budget with allocation of Rs100-200 Cr. Some may interpret this is making attempt to kick-start the implementation of things promised in manifesto, then just for your information Fund Allocated for equity infusion of Air India is Rs 6500 Cr – almost double of what is allocated for all these schemes.

These are few preliminary observations. I would post more in coming post especially one on comment on budget speech and contents in its. 

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One thought on “Analysis of Union Budget 2014-15

  1. good shot review and analysis.. i just stumbled upon this page though without using stumbleupon :P.. thnks for the info, and keep up the good work

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