The fact that the interest burden is 2.5 per cent higher than the GDP growth rate is alarming for the country's economic stability.
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Sometimes the best performance can be worse than the worst. The most recent and fresh example of this is Vikram Lander! The record lander crashed just two kilometers away to land on the lunar surface. This is because the speed at which Vikram Lander was expected to land on the Moon was much higher than expected and so Vikram Lander collided directly on the Moon without landing and lost contact with ISRO. This is because the skydriver misses his goal due to a sudden increase in wind pressure.
This is the current state of our economy. Saying that the economy is in good shape, the Union finance ministers have to face the same pressure and at the same time have to work hard. Far from reassuring industries, establishments and other stakeholders that are important to the finance ministry, the finance ministry has become increasingly entangled in a web of self-imposed fiscal deficits.
As long as the growth rate of the economy is high, the cost of extra spending and high taxes will continue. Only those who have good employment increase their income in such a way that the consumption of (various commodities) seeps down to the bottom which benefits the bottom 40 per cent. At the same time, if there is an increase in public and private spending in the infrastructure sector based on borrowed money, the real beneficiaries will be agriculture, industry and businesses. But as growth slows, so does the dollar.
Due to the sharp decline in revenue from non-tax and non-tax revenue, it is not possible for the government to fulfill some of its responsibilities. Suppose the government's fixed annual liabilities (expenditure on establishments and interest payments) increase by nine per cent in the current financial year as compared to last year. Out of this, 55 per cent will have to be paid as interest, which will increase by 12 per cent this year as compared to last year, it was mentioned in the budget.
But sadly, given the results of the first quarter and the slowing economy, the gross domestic product (GDP) is unlikely to grow at 9.5 per cent (6 per cent plus 3.5 per cent inflation) in 2019-20. Is. The interest rate is growing at a rate of 2.5 per cent faster than GDP, which is not a good sign for economic stability.
In the financial year 2018-19, the central government's tax collection was 13.2 trillion. However, it did not meet the target of Rs 14.8 trillion, 11 per cent less, but tax collection increased by six per cent over the financial year 2017-18. In the current financial year, the tax revenue collected from April to July, 2019 is only 20.5 per cent of the annual target, as against 19.8 per cent in the same period last year. Although the difference is small, it should be noted that last year's tax collection fell short of the target by 11 per cent. There are signs that it will be repeated in this financial year as well.
Meanwhile, revenue spending appears to be slowing down a bit this year compared to last year. According to the annual budget, this year's revenue expenditure is 34 per cent. The same expenditure was 36 per cent during the same period last year. This means that the government has noticed the fragile state of the economy and is now trying to meet its costs accordingly. If the fiscal deficit target of 3.3 per cent of GDP is to be maintained by March 2020, the government needs to cut back.
Is this the right time to exercise financial restraint ?, is the real question. The central government has received Rs 1.49 trillion (Rs 1.27 trillion minus Rs 0.28 trillion in the previous financial year) from the Reserve Bank of India. However, given the country's declining tax collection, the government will have to cover a deficit of Rs 1.5 trillion.
Given that the decline in various sources of revenue is six per cent of GDP, the fiscal deficit is likely to widen to four per cent of GDP, compared to the fiscal deficit of 2015-16 during the first term of the Modi government. The late Finance Minister Arun Jaitley honestly acknowledged this fact, accepted the truth and accepted the challenge of reducing the fiscal deficit to the level of keeping the deficit below 4.5 per cent till last year. The Modi government had inherited a growing fiscal deficit from the previous United Progressive Alliance government.
On the one hand, trade-offs are not being discussed at present to achieve FD targets, while on the other hand, there is no attempt to adopt a subtle, less indicative approach to maintain financial stability. The government's attitude must have been to make any statement without a full understanding of the situation, to prove its weakness.
The government's policy of silence on the economy is puzzling. No one is under the illusion that our current rulers are God, and that they can do anything. Mistakes happen to everyone. It may have been done by the government. But most importantly, it should be made clear to all the countrymen that this is a destabilizing effect of external shocks.
Assuming that by the end of this financial year, the central government's liabilities (excluding public debt plus small savings, provident funds and subsidies on fertilizers and funds for corporates in the oil market, excluding their guarantees) are expected to increase by Rs 98.07 trillion. Considering the size of our total economy of Rs 205 trillion, this figure is 48 per cent. Public debt to the central government stands at Rs 80.6 trillion, or 39.3 per cent of GDP. In fact, according to the Financial Responsibility and Budget Management Act, 2003, the limit should be 40 per cent. Which has clear indications of a breach in the current financial year. These huge loans taken from public sector enterprises are not recorded in the government's annual non-budgetary financing.
This is indeed a golden opportunity to implement radical reforms to shake up the economy. Reforms in the areas of land, labor and agriculture have been pending for the last few years. The 15th Finance Commission will soon submit its recommendations. Will there be such a commission again in the future, or will it be the last? Work on a direct tax code is currently underway. It has been decided that the two parties will have a 50:50 share in the revenue from tax collection, including GST, in various agreements between the Central and State Governments. In addition, the dream is to increase the collection of GST by 14% every year by 2022.
The promise of GST has now become a thorn in the side of the central government, as the current rate of inflation is less than 9.5 per cent. Many are also eyeing the reform of the merger of excise duty on petroleum products and alcohol into GST. This tax reform has been pending for a long time. Because both products are known to be sinful products, and a 28 percent tax would be levied on them, experts say, both products are currently manufactured for consumer purposes.
All these economic issues seem to be under-discussed at present. Instead, the debate revolves around the grandiose issues of mergers of banks, open doors for foreign direct investment, and digital taxation to curb corruption. These efforts are necessary to improve the economy, but the issues discussed above are just as important, or even more important, without which the economy will not be able to recover. How appropriate is it to just rub it when there is nothing in the pot?
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