Editorial 1 : Return of the exile
Introduction: Pakistan Muslim League (N) supreme leader and thrice the country’s prime minister, Nawaz Sharif returned home on October 21 after living in “exile” in London since 2019. This can have a significant impact on Pakistan’s relationship with its neighbors including India.
The current situation in Pakistan
- Pakistan has been under a constitutionally mandated caretaker government led by Anwaar ul Haq Kakar since August 14, whose primary purpose is to assist the Election Commission in conducting elections.
- The election is being delayed due to delimitation issue.
- It is also suspected that the army wants the election to be delayed until Imran Khan’s party is neutralized.
Reason of the feud between Imran Khan and the Army
- Imran Khan’s interference in the Army’s internal functioning.
- In 2021, Imran Khan opposed the Army’s choice of DG ISI.
- The Pakistan army has never allowed prime ministers to intervene in its internal work or to become final decision-makers in the country’s security and critical areas of foreign policy.
- Imran Khan became popular in the Punjab Province of Pakistan, from where most of the cadre of the Army comes.
- This has made the army nervous and Imran’s supporter’s action on May 9, where they ‘defiled’ sacred places of war heroes, and broke the army’s regional offices was a warning bell for the army.
Army’s role in Pakistan’s polity
- The military is the dominant institution in Pakistan’s polity.
- For a decade and a half, it has not been directly in power and under Bajwa, it gave the assurance that it will play only its constitutionally mandated role.
- That pledge was meaningless, for the army believes that it alone can hold the country together and keep India, the permanent enemy, at bay.
- Hence, it expects that on basic policy issues the elected leadership will bow to its wishes.
- The security and India policy will ultimately remain with the army.
Nawaz Shareef’s attitude towards India
- In the past, he convinced some of his Indian counterparts that he was trying to curb the army’s “interference” in his government’s decision-making on India.
- He did so with Prime Minister Atal Bihari Vajpayee, who met him for the first time in Colombo in July 1998 on the margins of the SAARC summit.
- Both Vajpayee and Modi’s endeavors with Sharif were destroyed by the Pakistan army which made it abundantly clear that it would never allow an elected leader to drive Pakistan’s India policy.
- Nawaz Sharif undoubtedly shares the army’s strong feelings on Jammu and Kashmir.
- However, unlike the army, in the past, he believed that Pakistan could both pursue a hard line on J&K and normalize commercial and economic ties with India.
- The 2019 constitutional changes will make it difficult for him to pursue this line unless India at least restores statehood to J&K.
Currently Army’s view on India
- While Bajwa talked of geo-economics as more important than geo-politics for Pakistan’s future, Munir has not given any indication that he thinks so.
- He seems to be cast in the army’s typical anti-India mold. But Pakistan continues to be in deep economic difficulties.
- Despite the assistance of China and other donors, it cannot move on a sustained upward economic path without comprehensively adopting realistic policies toward India.
- As of now, there is no indication that the army is willing to drink from the poisoned chalice of realism.
Conclusion: Nawaz Shareef’s homecoming is potentially significant for Pakistan’s politics but not for its polity; nor is it likely to transform the contours of its foreign and security policies, especially its obsession with India. Geo-economically, will Shareef be able to nudge Pakistan’s direction towards more realism? Only time will tell.
Editorial 2 : Steady Pickup
Introduction: Recent data released by the Controller General of Accounts shows a surge in the government’s gross tax collection.
Component of the government’s budget
- The government budget and its components can be divided into two parts –
- Capital budget
- Revenue budget
Capital Budget
- The Capital Budget covers non-recurring transactions through capital expenditures and incomes through the sale of assets.
- These refer to receipts that reduce assets for a government and increase financial liabilities.
- Government capital expenditure, on the other hand, aids in the creation of assets and the reduction of liabilities.
- As a result, the capital budget is an account of the government's liabilities and assets, which represent a change in total capital.
- Examples: Market borrowings by the government from the public, Borrowings from the RBI, Borrowings from commercial banks or financial institutions through the sale of T-BILLS, loans received from foreign governments or international financial institutions, post office savings, post office saving certificates, and PSU’s Disinvestment.
Revenue Budget
- A revenue budget is a statement of the government's anticipated revenue receipts and expenditures for a fiscal year. The revenue budget is for revenue items that are recurring and non-redeemable.
- This budget relates to revenue receipts and expenses incurred as a result of these receipts. The revenue received by a government includes both tax and non-tax revenue.
- Examples of revenue budget items: Salaries of employees, Interest payments on past debts, grants given to state governments, etc.
Status of gross tax collection
- In the first four months of the ongoing financial year, the central government’s gross tax revenues had been fairly subdued.
- In September, gross tax collections grew by a healthy 15.8 per cent. As a consequence, the Union government’s tax revenue has grown at a robust 16.3 per cent in the first half of the year.
- This is in sharp contrast to the Union budget which had factored in tax revenues to grow at around 10 per cent. These are encouraging signs.
Surge in direct tax collection
- The disaggregated data show that direct tax collections, which include both corporate and personal income tax, continue to grow at a healthy clip, with the former growing at 27 per cent in September, reflecting healthy advance tax inflows.
- Overall direct tax revenues have grown at 25 per cent in the first six months of the year, roughly half of the full year’s target.
Increase in indirect tax collection
- On the indirect tax side too, revenue has been healthy. Data released on Wednesday showed that GST collections rose by 13.4 per cent in September.
- With this print, GST collections have now averaged at Rs 1.66 lakh crore per month during April-October 2023, up 11.4 per cent from Rs 1.49 lakh crore during April-October 2022.
- This sustained increase in collections is not only indicative of the underlying momentum in the economy, the pre-festive push, but also a tightening of the tax systems to reduce evasion.
- Excise collections though remain below last year’s levels.
Concern from non-tax revenue part
- On the non-tax side, the higher than budgeted transfer from the RBI will provide some cushion.
- However, the subdued proceeds from disinvestment remain a matter of concern.
- As against a target of Rs 61,000 crore, collections have so far only touched Rs 8,000 crore.
- Alongside, tax devolution to states continues to grow at a fairly brisk pace.
- Till September, the Centre had transferred Rs 4.55 lakh crore to states, up 21 per cent from last year.
- To meet the budget target, the government has to devolve Rs 5.66 lakh crore, roughly similar to that last year.
Investment in capital expenditure remains robust
- On the expenditure side, total central government spending was up 16 per cent in the first half of the year.
- Capital expenditure has continued to grow at a healthy pace, registering a growth of 29 per cent in September.
- In the first six months of the year, the Centre’s capex has risen by a robust 43 per cent, touching almost half of its full-year target.
- While it is possible that expenditure on NREGA may end up exceeding the budget allocation, and that proceeds from disinvestment undershoot the target, higher tax and non-tax collections could provide some cushion.
Conclusion: With healthy growth in direct tax and GST revenues, the Centre’s fiscal arithmetic looks manageable.