India’s budget: What’s in it for us?

We should be happy that cars, India made electronic goods have become cheaper after the budget. However in context of the recently presented interim budget, let’s try to understand the overall economic situation of our country and how it is going to impact us, the common man!

Since more than last 10 years, the term ‘fiscal deficit’ has become popular and is very closely watched upon. Grossly ‘fiscal deficit’ can be understood as gap between Government’s expenditure and earnings. It has detrimental impact on the economy, particularly when it is coupled with revenue deficit. Revenue deficit means that the Government does not earn adequate money, not even to cover operating expenses. The potential harmful impacts are on local industry, credit cycle, influencing national policies, reduced social spending, poor infrastructure, unemployment and finally social unrest, all of which we are experiencing today!

In recent interim budget, for year 2013-14 the Government boasted to have reduced fiscal deficit to 4.6%, from 4.9%, however let’s see some underlying points, of this accounting jugglery:

  • Global rating agency Moody’s said in a statement “Moody’s stable outlook on India’s Baa3 sovereign rating incorporates the macro-economic risks posed by the government’s high deficit and debt ratios as well as its recent efforts to control the fiscal deficit through ad hoc measures“, few of those are reduction in desired expenditure, pushing current year’s fuel subsidy to next year’s account etc.Budget_2
  • To finance this fiscal deficit (Rs. 5,24,539 crores), the Government borrows more than 95% of it from market, which consumes 33% country’s total money supply (capital), no wonder for businesses/farmers/entrepreneurs for a common man it is difficult to get loan here and that too is at high rate of interests.
  • In January Moody’s warned India about rising concerns on debt structure as “The Indian financial system’s ability to absorb rising government debt could diminish significantly if the combination of low economic growth and high inflation persists beyond the next few quarters
  • As repayment of debt, the Government had to pay 65% of tax revenue, of which 45% of tax revenue has gone in interest payment alone! Our burden of debt is increasing every year, India’s situation has become like a debt ridden farmer, who gets more & more entrapped in the debt trap.Budget_1
  • The Wall Street Journal’ in their analysis of the budget while reading between the lines says “About 80% of the budget goes toward subsidies, salaries for civil servants, and other recurring spending, instead of roads or physical assets that boost productivity and reduce supply bottlenecks
  • About inflation it further says “Then there is the effect on inflation, spending that has gone mostly to consumers rather than infrastructure is partly why prices have been persistently rising near double digits. With the government taking it easy, the onus will be back on Mr. Rajan to keep tightening credit”. Consequently we have to pay higher interest rates!

The worst part of it is that with the Government there is no concrete plan to come out of such vicious situation. Well, Arthakranti proposal shows the way and is one promising solution for fiscal consolidation, about which a dedicated paper on fiscal consolidation is provided and for the same a detailed research report (more than 200 pages) is also available on demand.
Here are some news article links, referred in this write up:

India has met budget deficit target; fiscal position weak: Moody’s

Moody’s warns India on structure of government debt

India’s budget provision insufficient to cover fuel subsidies: Moody’s

Reading Between the Lines of India’s Budget

NEITHER NUMBERS NOR INTENT IS ABOVE BOARD

Fiscal consolidation: imperative but difficult

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