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BUDGET 2012-13 REVEALS

Budget

, by DR. WAQUAR ANWAR

Budget documents are always revealing. They show the strengths and weaknesses of the economy and uncover many facets of the governance which could not have been known easily otherwise.

Although budget technically refers to quantitative statements, the common man understands the politically correct announcements of the Finance Minister (FM) as the budget-proper. The quantitative statements which are presented in Parliament are guided by the provisions of the Constitution of India, and a closer look of the documents presented on account of the statutory requirements show many things. The facts and figures revealed by these documents may not be in the same wavelength as the impression created by the budget speech of FM.

One may pity an FM for his thankless task. On the one hand he has to handle the figures and on the other he has to leave a good impression and make the nation feel good. This feel good factor is a political necessity and no FM and the government on whose behalf he stands to speak can afford to do otherwise.

 

STATUTORY DOCUMENTS

The receipts and disbursements of the Government of India are shown under the three parts, in which Government Accounts are kept: (i) Consolidated Fund; (ii) Contingency Fund; and (iii) Public Account. Expenses and income on revenue accounts are depicted separately from those on capital account. Hence government budgets are presented separately for the two types of expenses and income: Revenue Budget and Capital Budget.

The Consolidated Fund of India depicts all revenues received by the government, loans raised by it, and also its receipts from recoveries of loans granted by it from the Consolidated Fund. Similarly, it depicts all expenditure incurred by the government from the Fund. No amount can be drawn from the Consolidated Fund without authorisation from Parliament. One of the main objects of budget presentation in the Parliament is to get approval from it.

Contingency Fund is an imprest placed at the disposal of the President of India to facilitate the government to meet urgent unforeseen expenditure. Such expenditures are ratified by post-facto approval of the Parliament in its next session. Thus this too is reflected in the Consolidated Fund of India because equivalent amount is withdrawn from it.

Public Account comprises moneys held by the Government in trust as in the case of Provident Funds, Small Savings collections, income of the government set apart for expenditure on specific objects like road development, primary education, Reserve/Special Funds, etc. As these are in the nature of liabilities of the Government their payments are not subject to approval of the Parliament. However, where amounts are withdrawn from the Consolidated Fund of India for specific objects, with the approval of the Parliament, these payments too are reflected in the Consolidated Fund.

We may conclude that Consolidated Fund of India represents the main account of the Central Government. An analysis of this Fund will portray the correct economic and financial position of the Government. It is surprising that despite the importance and relevance of the Consolidated Fund of India it is not being analysed in the media and other discussion forums on the budget. Radiance Viewsweekly has been presenting an analysis of this nature year after year. We intend to do the same with regard to Budget 2012-13 in the following lines.

 

ANALYSIS OF CONSOLIDATED FUND OF INDIA

We have summarised the statutory submission of documents in Budget 2012-13 under Consolidated Fund of India in the given tables. All the figures have been depicted under two columns for Revised Estimate of 20011-12 (RE 2011-12) and Budgeted Estimate of 2012-13 (BE 2012-13).

i)                    Revenue Receipt (Annexure – I)

ii)                  Revenue Disbursement (Annexure – II)

iii)                Capital Receipt (Annexure – III)

iv)                 Capital Disbursement (Annexure – IV)

v)                   Combined Net Flow of Fund (Annexure – V)

vi)                 Debt Servicing Required (Annexure – VI)

The purpose of the above mentioned re-arrangement of figures as presented in the budget statements is to analyse the debt servicing position of the Central government and the extent of generation of income other than from debt. This has been done in the last Annexure.

Revenue Receipt (Annexure – I) shows the revenue collected through taxes and duties, other income, interest income and the revenue deficit.

Revenue Disbursement (Annexure – II) shows the disbursement of revenue to different sectors including payment of interest.

Capital Receipt (Annexure – III) shows the addition of debts from internal and external sources along with other capital receipts.

Capital Disbursement (Annexure – IV) highlights disbursements of capital nature to different sectors/services along with repayment of internal and external debt.

Budget statements merge the revenue receipts to capital receipts and revenue disbursement to capital disbursement. We have shown the net figures in a separate statement (Annexure – V) so that the position of combined net flow of fund may be understood.

 

PRECARIOUS ECONOMY

The position as it comes out from the above analysis shows a very critical position of economy. More than 93% of new debt in RE 2011-12 was utilised for servicing the old debts including principal amount of the loans and interest accrued and due thereon. This has further increased to more than 94% in the case of the projections for BE 2012-13. In other words, almost all the new debts are taken to repay the instalments of earlier debts due during the year and interest due on the debt. 

The position of generation of income of the government from sources other than debt and interest is also precarious. In the projection of the year RE 2011-12 non-debt receipt as a percentage of debt servicing required is mere 25.38% and that in BE 2012-13 is 28.27%. This means that even if all non-debt income is used for repayment of instalment of debts for the year and payment of interest accrued and due, it would not cover even one-third of the debt servicing required. The solution lies in taking fresh loans. This is a vicious circle that goes on as fresh debt is created to pay off earlier debts and interest thereon.

This is the position existing in almost all countries following capitalist system of interest-based deficit financing system of economy. The solution lies in opting for equity-based interest-free system, if not radically at least gradually and consciously. This requires structural changes in economy which the nations today are simply avoiding. And they are doing this at the cost of worsening their economies. Every day is becoming darker than the earlier day.

Earlier the consequences are realised the better.



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