The inability of the government to manage to receive the taxes that it has planned on receiving has to do as much with false expectations as with the political lack of determination to enforce tax payment and punish tax evasion. The Budget estimates themselves were substantially based on assumptions of tax buoyancy which were not justified and have not been realised.
 
One of the more prominent fiscal myths of our time is the idea that lower tax rates necessarily encourage better compliance. It should be obvious that this is so only when the costs of non-compliance are high, or at the very least non-negligible. However, if it is possible to evade taxes on certain portions of income completely with relatively low risk of any penalty, then it is difficult to see how paying taxes even at a lower rate becomes more attractive. And since there have been no really serious and plausible efforts at better enforcement, it is not surprising that tax revenues themselves have not shown the expected buoyancy.
 
But even so, this discrepancy between Budgeted and actual tax outcomes obviously reflects more than mere ineptitude or lack of political will on the part of the government, although these are of course important. Low tax receipts are a typical feature of recessionary economic situations, and it is usually the case when the economy is experiencing a lower level of economic activity than expected, that tax collections will fall below target. In such situations, along with more serious effort at tax compliance, the effort should be to direct policy towards alleviating the recession, so that tax collections similarly can increase.
 
Instead, the government seems to have been far more focused on the problem of containing a fiscal deficit which threatens to balloon because of inadequate revenues generated so far. "Fiscal discipline", such as it is, seems to be entirely confined to certain parts of the Expenditure side of the Budget. Therefore, the government has been much more concerned with reducing its own expenditures, including its more productive ones.
 
One of the remarkable - and more depressing - features of the fiscal experience of the previous year was the extent of shortfall in various types of crucial plan expenditure by the Central Government. The gap between planned and actual spending was especially large in major areas like agriculture and rural development, power, transport and other infrastructure. This pattern seems about to be repeated in the current fiscal year as well.

Chart 5 >> Click to Enlarge
 
As shown in Chart 5, there remains a large gap between actual spending so far and the Budget provisions. After two-thirds of the financial year was over, only just over half the budgeted amount had been spent in most areas. The smallest gaps, perhaps predictably, were in interest payments and non-plan revenue expenditure - that is, precisely the areas which are least effective or important from the point of view of growth and development potential.
 
Despite this excessive zeal on the part of the government to curtail its own expenditure, including such expenditure as has a direct bearing on future growth and current welfare of the citizens, the deficits which it is apparently bent on curbing show no signs of being controlled. Chart 6 plots the various deficits already achieved, as well as the Budget projections.

Chart 6 >> Click to Enlarge
 
The fiscal deficit had already exceeded 80 per cent of its overall annual target by November 1999, while the revenue deficit had reached 84 per cent of the Budget projection. The starkest discrepancy is evident for the primary deficit (that is, minus interest payments) which was expected to be negative (that is, the primary budgetary account was meant to be in surplus) to the tune of around Rs. 8,000 crore. Instead, it is already in deficit of almost Rs. 15,000 crore.
 
This excess of actual deficits in relation to Budget targets is even higher than for the corresponding period in the previous year, as Chart 7 suggests. The previous year was notable for the extent to which the deficits increased out of all proportion to the Budget estimates, but the data so far indicate that this record may even be exceeded in the current year.

Chart 7 >> Click to Enlarge