Here’s how India’s finance ministers hide billions of unplanned expenses
- The annual budget does not give the full picture of the economy.
- India’s financial health is consistently masked by accounting adjustments
- The government auditor has raised serious questions on credibility of India’s budget exercise.
Fiscal deficit is the amount by which India’s government expenses exceed the receipts. Higher the deficit, the government borrows that much more to meet its expenses. As in any household, even the government is expected to spend wisely and keep its debt in check.
However, successive governments in India have doled out far more than they should have. An annual target for fiscal deficit is spelt out and exceeded every time. And even the final number hides a lot more than it reveals.
The lack of transparency is a charge that has come from none other than the government auditor. “Audit noticed lack of transparency/mismatches in disclosure of deficit figures in Budget at a Glance and Annual Financial Statements,” a January 2018 report from the Comptroller and Auditor General of India said.
Untold tax refunds
Taxpayers often pay more than they ought to and get refunds after filing returns. This number has been increasing every year. As the CAG noted, “Though a significant amount of the gross direct tax collected in the relevant year is refunded in subsequent years, Government Finance Accounts do not include this.”
Subsidies in the shadow
India spends nearly 10% of its gross domestic product (GDP) in subsidising necessities like food, fuel, and fertiliser, among other things, for its people. However, what the government promises in the budget speech is not what the accounts show eventually, and what the books show is not the full truth.
While the expenditure on subsidies is lower-than-budgeted for, there is a lot more in the shadows. “Government has adopted off-budget means of financing the subsidy arrears, thereby deferring the payment in the relevant financial year,” the CAG said.
For instance, the government buys food items from farmers at a fixed price that is often more than the market price. However, the budgeted amount for this support given to farmers is much less than what the government actually ends up spending.
AdvertisementMuch of the actual cost is borne by the Food Corporation of India, a state-owned entity that buys the produce from the farmers. FCI is entitled to be repaid by the government for the excess amount that it has paid for. But then, FCI is not repaid on time and this delay in payment is not shown on the books.
What is worse, the FCI makes up for the unpaid dues with money from the country’s small savers. “In order to cover financial requirements arising out of the subsidy arrears, FCI resorts to a number of methods in different years such as Bonds (₹13,000 crore), unsecured short term loans (₹40,000 crore), National Small Saving Funds (NSSF) Loans (₹70,000 crore) etc,” the CAG report said.
Similarly, in the case of fertilisers, where the government offers subsidies to farmers, the government’s deferred dues have been piling up over the years.
Such adjustments, aside from masking the real shortfall in budget, also lead to higher interest cost, which is not plainly visible.When indulged in repeatedly, such acts of omission also cast a shadow on the credibility of the numbers put out by the government.
AdvertisementThe rise in borrowing cost and loss of credibility also weakens the rupee, making imports like crude oil, gold, and electronics costlier. The rising cost of fuel due to rise in crude oil import bill will also make necessities like food items costlier.
2019 will be a year where the government will have to appease a lot of voters by stepping up the subsidies, whereas there just isn’t enough money or room to borrow. Markets will also punish the government with higher interest on loans if it exceeds the fiscal deficit target considerably. A pinch of salt will come handy while listening to the finance minister’s speech on budget day.
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