The revenue projections in the Budget are highly optimistic and out of line with the historical patterns of tax buoyancy, according to an analysis by Crisil.
In its analysis of the Budget numbers, Crisil fears the expected growth rate of 24.64 per cent in tax revenues is an area of concern.
The Budget plans to mop up additional tax revenues of Rs 62,800 crore (Rs 628 billion), a large part of which is contingent on growth in corporate turnover and profits.
In the last eight years, the government has been able to meet or exceed its Budget estimates of tax revenues only twice, in 1996-97 and in 2003-04.
However, on both occasions, the corporate sector had reported a robust growth in sales and profits which bailed out the budget arithmetic.
A substantial contribution to this year's surge in tax revenues is expected to come from early settlement of tax arrears.
The expectation of gross tax revenues of Rs 3,17,733 crore (Rs 3,177.33 billion) hinges on hopes that net tax revenue will grow by 24.64 per cent in fiscal 2004-05.
Historically, the government's net tax revenues have been growing at an average growth rate of 10 per cent.
However, the Rs 1,09,199 crore (Rs 1,091.99 billion) target for excise duty collections in 2004-05 is likely to be achieved, the Crisil report said.
In the past, excise duties accounted for 10.2 per cent to 10.5 per cent of the gross sales revenues of the corporate sector.
Assuming sales growth continued at over 10 per cent year on year, the aggregate sales of the manufacturing sector may well cross over Rs 10,000,00 crore (Rs 10,000 billion) in 2004-05.
Barring 2003-04, the targeted corporate tax collection has never been achieved in the past. The budgeted tax collection of Rs 88,436 crore (Rs 884.36 billion) for the current year, which also includes the turnover tax, is quite ambitious. The budget expects corporate tax grow at 40.4 per cent.
However, the tax collections of listed companies, accounting for 65 per cent of the total corporate tax collection in 2003-04, rose 18.7 per cent in 2003-04.
The turnover tax, which expects to yield Rs 7,500 crore (Rs 75 billion) this year, may play a spoilsport. In such a case there will be shortfall of Rs 12,000 crore (Rs 120 billion) if the growth rate of 40 per cent in tax collections is not achieved.
The Budget assumes a nominal GDP growth of 12.7 per cent for 2004-05. Under the assumption of 5.0-5.5 per cent inflation, this translates into a high real growth of about 7.2-7.7 per cent. Crisil's assessment is that sustaining such high growth on a strong base of 8.2 per cent growth in the previous year is unlikely.
It is expected that a real GDP growth of under 6.5 per cent even if the monsoons are normal. The growth assumptions underlying the Budget are, thus, on the optimistic side.
Neither the Budget nor the three accompanying documents provide sectoral growth patterns, estimates of which are necessary to assess the realism of budgetary arithmetic.
Even with normal monsoons, given the high growth of last year, a growth in agriculture is likely to be flat in 2004-05.
Assuming that the buoyancy in services will continue, a growth of 8.5 per cent is feasible. The industrial growth required to deliver 7.2-7.7 per cent real GDP growth would be above 10 per cent.
Even if agriculture does exceptionally well and grows at the trend level of 3 per cent, industry will have to grow at close to 9 per cent to deliver the budgeted growth rates.
© 2025