Opposition-ruled States, especially southern States, have raised concerns about discriminatory treatment in the current system of fiscal resource sharing between the Centre and the States Various Opposition-ruled States especially from south India have complained of ‘discrimination’ and ‘unfair’ treatment under the present scheme of sharing financial resources between the Union Government and the States. Article 270 of the Constitution provides for the sharing of net tax proceeds collected by the Union government with the States. The taxes that are shared include corporation tax, personal income tax, Central GST (Goods and Services Tax) of CGST, the Centre’s share of the Integrated Goods and Services Tax (IGST), CED on petroleum products excluding the cess and surcharge levied by the Centre etc. All...
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Category: Fiscal deficit/subsidies
Is the Government debt sustainable?
The Government should take recourse to borrowings only for the creation of long-term assets. This will help generate income streams that can help in servicing the loans Recently, the International Monetary Fund (IMF) has forecast that India’s general government debt – it comprises the debts of the Centre and states – will overshoot 100 per cent of the GDP (gross domestic product) by the financial year (FY) 2027-28. Responding to this, the Ministry of Finance (MoF) clarified that this wasn’t under a ‘baseline scenario’ – a jargon to describe normal economic conditions. It added the IMF was referring to a ‘worst-case scenario’ wherein a global shock would equally affect all countries. Is the government’s debt sustainable? The government’s debt is...
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The Centre has no control over subsidies
The biggest drawback with the current system of food subsidy is making it available at throwaway prices. It allures dubious players who buy it cheap and sell it at higher prices The Union government’s total expenditure on the three major subsidies – fertiliser, food and cooking gas – during the current financial year (FY) is likely to be around Rs 400,000 crore as against Rs 549,000 crore spent during FY 2022-23. From this, it might appear that the government has made serious efforts to trim the subsidy. But, looking at the situation on ground zero, this isn’t so. The subsidy on each tonne of fertiliser produced (or imported) and sold is the excess of the cost of production/import and distribution...
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India’s major subsidies bill balloons. And, it was set to happen
The underachievement of targets is a manifestation of an attempt by the ruling dispensation to artificially suppress the BE in order to show a better picture of the fiscal deficit. The Union government may end up spending Rs 50,000 crore more than the budget estimate (BE) on the three major subsidies — fertiliser, food and cooking gas — during the current financial year. The maximum slippage of Rs 25,000 crore would be in fertiliser subsidy where the revised estimate (RE) is likely to be Rs 2 lakh crore against a BE of Rs 1.75 lakh crore. Food subsidy will increase by Rs 15,000 crore with the RE rising to Rs 2.12 lakh crore against the BE of Rs 1.97 lakh crore....
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Off-budget borrowings are unhealthy in nature
The Union Government wants to ‘pre-pay’ the remaining off-budget borrowings of Rs 170,000 crore over a reasonable period of time Off-budget borrowings or extra-budgetary resources (EBRs) – as these are called in budget parlance — are those borrowings that are raised by public sector undertakings (PSUs) and other agencies of the government such as Food Corporation of India (FCI), Housing and Urban Development Corporation (Hudco), Power Finance Corporation (PFC), NABARD etc to fund its schemes for which repayment of entire principal and interest is done from the Union Budget. The Centre had EBRs close to Rs 670,000 crore by the end of 2020-21. If all obligations about such borrowings are met by the Union government then why does it not...
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Rethinking Universal Basic Income and subsidies
There is a compelling case for disbanding all existing forms of support and replace them by what may be termed as ‘Unconditional Basic Income’ or the UBI system. During an interaction organised by the Confederation of Indian Industry (CII) last month, Chief Economic Advisor V Anantha Nageswaran dismissed the idea of Universal Basic Income (UBI) in India. He expressed concerns that UBI might create create ground for “perverse incentives,” discouraging people from actively seeking income-generating opportunities. As a result, he believes that UBI should not be priority in the near future. Drawing comparisons with developed countries, the current CEA highlights that these nations have limited room for increasing economic growth and creating income generating opportunities. Consequently, their governments have established social...
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Who will end the free-run of freebies?
Political parties don’t want freebies to go. It is their much-cherished tool to harness votes. And they know it works like a charm In the just concluded assembly elections in Karnataka, the grand old party (GOP) Congress had promised five guarantees viz. Gruha Jyoti, Gruha Lakshmi, Sakhi programme, Yuva Nidhi, and Anna Bhagyain in its manifesto. Having got a decisive mandate to form the government, Congress pledged to approve all the five guarantees in the very first meeting of the Cabinet. The big question is: is it worth spending so much of taxpayers money? The guarantees are intended to be a welfare scheme. Under it, the government should ensure that (i) the assistance goes to a person who is desperately...
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Fiscal target gliding away from its path
To reset the targets at a significantly relaxed level and then claim that fiscal numbers are well on track looks amusing In the Union Budget for 2022–23, Finance Minister Nirmala Sitharaman kept the Budget Estimate (BE) for the fiscal deficit (FD) at 6.4% of GDP. She described this as ‘advancing on the road to fiscal consolidation,’ citing the target of 4.5 % to be achieved by 2025–26 (this was announced in her budget speech for 2021-22). As per the revised estimate (RE) given while presenting the budget for 2023–24, she has precisely achieved this number. For 2023–24, she has kept the target at 5.9%, and for 2025–26, one would get the sense that the Union government is proceeding at the...
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Subsidies will derail fiscal deficit target
The shift from giving food at Rs 2/3/1 per kg to “free” would lead to an additional outgo of about Rs 13,000 crore In the Union Budget for 2023–24, Finance Minister Nirmala Sitharaman has stuck to the fiscal deficit (FD) target of 6.4 per cent of GDP in the revised estimate for 2022–23. She has kept the target for 2023–24 at 5.9 per cent. However, payments on major subsidies such as fertilisers and food, which account for a significant share of the Union government’s total expenditure, could play spoiler. Fertiliser subsidy—payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution of fertilisers over the low maximum retail price (MRP) fixed by the government—was budgeted...
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Off-budget liabilities return in Budget ’23
Unless PM Modi cracks the whip on reforms in food and fertiliser subsidy, such liabilities will haunt economy In Budget 2020-21, Finance Minister Nirmala Sitharaman candidly acknowledged the existence of the so-called off-budget liabilities and extra-budgetary resources (EBRs) and mentioned these in an annexure. EBRs are those financial liabilities or borrowings that are raised by public sector undertakings (PSUs) and other agencies of the government to fund latter’s schemes for which repayment of entire principal and interest is done from its Budget. If all obligations pertaining to the borrowings are met by the Union government then why does it not take these on its own balance sheet (BS) instead of riding piggyback on its agencies/PSUs? The reason is by not...
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