Why budgets presented in end-February are better

When the date of the Union Budget was moved in 2017 from end-February to 1 February, I praised the move. I wrote in my post-budget column in Mint (3 February 2017): “The… advancement of the date of the budget to the start rather than the end of February … gives enough time for the Finance Bill to be actually passed before the start of the next fiscal year, and therefore prevents the kind of delayed start to implementation that is a major cause of poor outcomes.” There were two other operational changes to the Union Budget that year which also I wholly endorsed. and non-Plan expenditure (a fruitless distinction) with the conclusion of the 12th Plan.

I still endorse those last two, but I now think 28 February is the more appropriate date for presentation of the Union Budget, because 1 February does not synchronize with the dates of issue of gross domestic product (GDP) estimates. By 1 February 2022, we had a first advance estimate (FAE) of GDP for 2021-22 of 232 trillion. The FAE is based on data for the first two quarters of the year. On 28 February, the second advance estimate (SAE) was issued, better informed than the FAE by virtue of having data from the third quarter at hand. The SAE for 2021-22 at 236 trillion is higher than the FAE by 4 trillion. Using the SAE reduces the fiscal deficit for 2021-22 from 6.9% (by the FAE) to 6.7% of GDP.

In the rest of the world, fiscal percentages in an annual fiscal statement are taken as final, with the expectation of some post-budget refinement at the second decimal place at best. What has happened in India after 2017 is that credit rating agencies and other India-watchers have had to leave space in their worksheets for post-budget adjustments well above the second decimal place. For all you know, credit rating agencies might give the Indian economy better ratings if clean percentages that did not have to be changed a month after the budget put them in a better mood.

This is not a criticism of the national accounts division of the ministry of statistics and program implementation (MOSPI). They dutifully released quarterly GDP figures at pre-announced dates two months after the end of every quarter. The scheduled date for the third quarter GDP falls by that schedule at the end of February.

So we would have more stable fiscal aggregates if we were to shift back to 28 February, or 1 March, as the date for the Union Budget. With appropriate management of Parliament, it should be possible to push through the Finance Bill before the start of the new fiscal year.

In my immediate post-budget column in Mint this year (2 February 2022), I estimated that the consolidated debt of the Center plus states would not cross 89% of GDP by the FAE at the conclusion of 2021-22. Doing the same calculations with the SAE instead, I get an upper limit for consolidated debt at 87.5 % of the GDP of 2021-22.

Of course, further revisions of the GDP for 2021-22 are in store, when the provisional estimate is issued along with the fourth quarter figures at end-May. But a switch to 28 February for the budget with GDP information from the first three quarters would still be vastly preferable to the present situation.

What about 2022-23? Does the SAE for 2021-22 change anything? GDP for 2022-23 is projected in the budget at 258 trillion, 11.1% nominal growth over the FAE for 2021-22, but only 9.1% growth over the SAE. Since the relevant parameter is the expected nominal rate of growth, the absolute GDP estimated at 11.1% above the SAE of 236.43 trillion works out to 262.7 trillion.

The fiscal deficit budgeted for 2022-23 is 16.6 trillion, which was 6.4% of the FAE-based projection, but 6.3% of the SAE-based projection. Adding on the fiscal deficits of states, and allowing for other necessary adjustments, the outer limit of the consolidated debt at the conclusion of 2022-23 works out to 88.5% of GDP projected from the SAE. This just uses the budget figures as they stand; it would be lower if more corrections had been made—to the revenue estimates, for example.

Whichever way the numbers pan out over the year, there is clearly a need to use the most updated GDP estimates possible at budget time. Some years ago, the reliability of official GDP figures was challenged by Arvind Subramanian, a former chief economic advisor. A raging debate ensued. My problem was that Arvind and his team didn’t supply an alternative series to use.

And that is the problem. No one outside the official statistics network can put together GDP figures for the country, because the data needed just cannot be replicated outside the official machinery.

I have always maintained that just like memorials to the unknown soldier, we need a monument to the ‘unknown statistician’ who spends many years in service putting together the GDP numbers we all use.

Indira Rajaraman is an economist

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