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FE Editorial : Growth booster
By JACKSON of Cashsee.com
In 2008-09, the government plans to borrow (gross) Rs 1,35,000 crore and RBI figures
show 78.52% of planned borrowing has been done in the first six months. The bonds have been at
interest rates between 7.38% and 8.33% and cut-off prices on 364-day treasury bills have been
marginally higher.
This is not the only way government pre-empts funds from private uses and upshot of pre-emption
is both lack of liquidity and higher interest rates. Ostensibly, the government is on an
austerity drive. But that is not reflected in supplementary grants. One can understand the
clubbing of third supplementary demand for grants (usually in Budget session) with the second
demand (winter session) because there might not be a Budget session.
However, Sixth Pay Commission, oil and fertiliser bonds, farm debt waiver and Bihar
rehabilitation notwithstanding, one cannot understand the magnitude of these supplementary
grants, authorising additional gross expenditure of Rs 2,37,286 crore. Numbers don’t add up
and it is unfortunate that these demands were passed by Parliament without demur. If there’s
extra spending for growth boosting, shouldn’t the House have discussed such a plan a bit?
Also, the government claims that additional net cash outgo is only Rs 1,05,614 crore, the
remainder is apparently taken care of through savings of ministries/departments and enhanced
receipts & recoveries. No details are available on the latter; so no firm conclusion is possible.
The Sixth Pay Commission awards amount to Rs 22,100 crore, farm debt waiver Rs 71,680 crore,
fertiliser bonds Rs 7,500 crore and oil bonds an additional Rs 39,364 crore. The point is that
numbers for these are known expenditure. Add Rs 10,500 crore more spending for National Rural
Employment Guarantee Scheme. All that still leaves almost Rs 1,00,000 crore unaccounted for.
As we said, if this is tactical deficit financing, why not say so and have a discussion?
Pessimists will conclude otherwise that the money will be spent on so-called flagship schemes
of dubious value.
Each of four governments since 1991 hasn’t deviated from the goal of reducing deficits and has
had varying degrees of success. The UPA government is making a virtue of deviation, but not
being clear about all facts and intents. On paper, fiscal deficit is expected to be 2.5% of GDP
in 2008-09 and in 2007-08 gross fiscal deficit (including states) was 5.5%. Fiscal deficit is
more than a goal in FRBM Act—deficits have substantive consequences. With deficits properly...
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