Union budget 2022: Alarming, interest costs the most?
The general public is largely left out of the serious things of the annual budget. But the budget is something more, a barometer of the country’s economy
Gopal Goswami, California Mukesh Kabra
Smt. Nirmala Sitharaman, Minister of Finance of India, recently presented the fourth consecutive budget of the Union and the ninth budget of the Narendra Modi government. Nirmala Sitharaman has been on the elite list of ministers who could present four or more budgets like Morarji Desai, Pranab Mukherjee, Manmohan Singh, Arun Jaitley, etc. So far, Morarji Desai has presented ten budgets to Parliament.
For a commoner, the budget is just news in which he is interested in knowing the tax burdens imposed by the government, but in India, the number of such people is minimal. Only a small percentage of our population pays direct taxes. The other interest for people is capital expenditure, so that they can estimate the employment generated by investment projects and therefore the flow of cash in the market. The general public is largely left out of the serious things of the annual budget. But the budget is something more, a barometer of the country’s economy.
The most alarming aspect of this budget is the exponential increase in interest expenses. When the Modi government took over the helm of the country in 2014, the estimated interest expenditure in the budget was around Rs 3.80 lakh crore, while the estimated interest expenditure for the financial year 2022-2023 is Rs 9.40 lakh crore. This implies that interest charges have almost tripled in the space of nine years. The amount of interest, at first glance, seems to be phenomenal in terms of value, but is it a reality? We often hear experts in the economic and political arena say that this government has ruined the economy and that we are heading towards financial bankruptcy. It’s generally believed that you have to keep interest charges low to navigate choppy waters, but is that belief really tenable in all situations?
It is a golden rule of comparison that an apple should only be compared to an apple. An apple cannot be compared to a banana. Are our interest expenses actually increasing? The answers can be traced by analyzing a few vital figures between these two eras.
Now compare some other vital data to our economy:
Domestic debt includes open market borrowings, offsets, bonds, etc. -bearing securities in rupees issued for the benefit of international financial institutions. While India’s external debt is the total debt the country owes to foreign creditors. Debtors can be the Union Government, State Governments, Companies or Indian Citizens. Debts include money owed to private banks, governments of other countries, or international financial institutions like the International Monetary Fund (IMF) and World Bank.
India also lags behind its peers in comparing interest with income. According to the World Bank report, which is based on 2019 values, the average interest expenditure relative to income for most World Bank countries is 5.6%. A few countries have nominal interest expenses, such as Singapore and Switzerland. Most developed and developing countries are able to control their interest expenses and keep them within tolerance. As Germany had 1.5%, Russia had 2.6%, China had 2.8%, Canada had 5.9%, UK had 6%, Italy had 8.2% , the United States had 15%, but none of the major countries came close to India’s level, which was 23%. % to 2018 value.
From the above data, it is apparent that the interest payment has decreased given the exponential increase in the size of the budget. The real concern is that nearly half of tax revenue is spent on interest payments despite the substantial increase in tax revenue over these nine years. Interest payments are also rising relative to GDP, which is another alarming area for the government.
Another significant part of the budget is allocated to fixed costs, which include salaries, pensions, salaries, establishment costs, etc., although the government tries to control these expenses through various measures. The most significant part of the comparison of these two eras is the significant drop in subsidies. The grants were around 2.50 lakh crore in 2013-2014 which is now pegged at around 3.20 lakh crore. A significant share of about 22.5% of total expenditure was spent on pre-Modi era subsidies, which significantly decreased to about 8.2% of total budget expenditure. This was possible thanks to the firm determination of the government and was very necessary for the Indian economy. FM made a brave move on Air India divestment, but there are still many PSUs that eat tax money, to be divested by the government. It is important to spend as much money as possible on capital projects. Government services like the railways and the post office should be more efficient and cost-effective. The government needs to find more ways to reduce the interest burden or we could soon be heading for an economic downturn and financial crisis like the United States experienced in the first decade of this century.