Alarming, the interest cost eating up the most? – Union Budget 2022: The Financial Express

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The general public is largely away from the nitty-gritty of the annual budget. But the budget is something beyond this, a barometer of the economy of the country

Only a small percentage of our population pays direct taxes.

Gopal Goswami, CA Mukesh Kabra

Smt. Nirmala Sitharaman, the finance minister of India, recently presented the fourth consecutive union budget and the ninth budget of the Narendra Modi government. Nirmala Sitharaman has made it to the elite list of Ministers who could present four or more budgets, like Morarji Desai, Pranab Mukherjee, Manmohan Singh, Arun Jaitley etc. So far, Morarji Desai has a record of presenting ten budgets in Parliament.

For a commoner, the budget is mere news wherein he/she is interested in knowing the tax burdens laden by the government, but in India, the number of such people is minimal. Only a small percentage of our population pays direct taxes. The other interest for people is capital expenditure, so they can estimate the employment generated by capital projects and thus liquidity flow in the market. The general public is largely away from the nitty-gritty of the annual budget. But the budget is something beyond this, a barometer of the economy of the country.

The most alarming aspect of this budget is exponential increase in interest expenditure. When the Modi government took over the reins of the country in 2014, the estimated interest expenses in the budget were around Rs 3.80 lakh crore, whereas the estimated interest outgo for the financial year 2022–23 is Rs 9.40 lakh crore. It implies that interest expenses have almost tripled in the span of nine years. The interest amount, prima facie, seems to be phenomenal in terms of value, but is that a reality? We often hear from experts in the economic and political arena that this government has ruined the economy and we are heading towards financial bankruptcy. It is a general understanding that one should keep the interest burden low to sail through the rough waters, but whether this belief is really tenable in every situation?

It is a golden rule of comparison that an apple should be compared with an apple only. An apple cannot be compared with a banana. Is our interest expenditure increasing in reality? The answers can be traced by analysing some vital figures between these two eras.

Now Compare some another vital Data in relation to our economy:  

Internal debt comprises loans raised in the open market, compensation, bonds, etc. The external debt of India includes borrowings through treasury bills, including those issued to state governments, commercial banks and other investors, as well as non-negotiable, non-interest-bearing rupee securities issued to international financial institutions. Whereas the external debt of India is the total debt the country owes to foreign creditors. The debtors can be the union government, state governments, corporations or citizens of India. Among the debts are money that is owed to private banks, governments from other countries, or international financial institutions like the International Monetary Fund (IMF) and the World Bank.

India is also lagging behind its peer countries in the comparison of interest with revenue. As per the world bank report, which is based on 2019 values, the average interest expenditure to revenue of most of the world bank countries is 5.6%. A few countries have nominal interest expenditure, like Singapore and Switzerland. Most developed and developing countries are able to check their interest outgo and keep it within the tolerance limit. Like Germany had 1.5%, Russia had 2.6%, China had 2.8%, Canada had 5.9%, UK had 6%, Italy had 8.2%, USA had 15% but none of the major countries is near to India’s level, which was 23% at 2018 value.

From the above-mentioned data, it is apparent that interest payment decreased considering the exponential increase in budget size. The real worry is that almost half of the tax revenue is expended towards payment of interest despite the substantial increment in tax revenue in these nine years. Interest payments are also increasing compared to GDP, which is another alarming area for the government.

Another significant portion of the budget is allocated to fixed costs, which include salaries, pensions, wages, establishment costs, and so on, though the government is trying to keep this expenditure under check through various measures. The most significant part of the comparison of these two eras is significant downfall in subsidies. Subsidies were around 2.50 lakh crore in 2013-14 which has now pegged to around 3.20 lakh crore.  Significant portion around 22.5% of total expenditure was expended towards subsidies in the pre-Modi era which has decreased significantly around 8.2% of total budget expenditure. This was possible due to firm determination of the government and was much needed for the Indian economy. FM has taken a brave decision on the disinvestment of Air India, but there are still many PSUs eating up the tax money, to be disinvested by the government. It’s important to spend as much money as possible on capital projects. Government departments like the railways and the post should be more efficient and cost-effective. The government needs to find more means to curtail the interest burden, otherwise soon we may be heading towards a slow-down of the economy and a financial crisis like the US has seen in the first decade of this century.

(The authors – Gopal Goswami is Research Scholar, NIT Surat and Mukesh Kabra is a Surat-based Chartered Accountant practicing from 20 years. Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)

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