The fiscal discipline of the Central Government has gone haywire over the past two years, more so during 2008-09. According to RBI data, net bank credit to the Government — borrowings from the RBI and other banks that participate in government borrowing programmes — rose by a staggering Rs 3,95,330 crore during 2008-09 from a mere Rs 45,632 crore in the previous fiscal. Moreover, the Government has already announced that it will borrow Rs 2,40,000 crore during the first half of the current fiscal.More...
According to the Finance Ministry, the fiscal deficit during 2008-09 amounted to 6.2 per cent of GDP. But this figure does not take into account off-budget liabilities, including oil and fertiliser bonds. According to the Prime Minister’s Economic Advisory Council, under-budgeted and off-budget liabilities could add up to another 5 per cent of GDP. Thus the real fiscal deficit last year was 11.2 per cent of GDP which is unacceptable. If we add the deficits of State governments, the picture becomes scary.
ReplyDeleteA more worrisome feature of the government expenditure is the uncontrolled growth in revenue expenditure, which is largely unproductive as it is meant for current consumption. During the last fiscal, it out-soared the original Budget estimate by a whopping 337 per cent at Rs 2,41,273 crore, and amounted to 4.4 per cent of GDP.
Hence the least that the Government could attempt during the current fiscal is to rein in the revenue expenditure by cutting down subsidies and prioritising expenditure. The next step should be to aim at fiscal consolidation over the next two-three years to make the economic recovery sustainable.
Mr Mukherjee must resist the temptation to borrow more and more from the market because that will elbow out private investment demand; divesting some more of the Government’s stake in profitable PSUs in a market ready for new equity is a more optimal option for every stakeholder.
Yours sincerely,
Dr. P. K. Vasudeva
Former Senior Professor,
Icfai Business School,
Chandigarh
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