{"id":2624,"date":"2014-02-17T20:32:17","date_gmt":"2014-02-17T15:02:17","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=2624"},"modified":"2014-02-17T20:32:17","modified_gmt":"2014-02-17T15:02:17","slug":"vote-of-account-2014-is-chidu-mr-natwarlal-of-budgeting","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2014\/02\/17\/vote-of-account-2014-is-chidu-mr-natwarlal-of-budgeting\/","title":{"rendered":"Vote of account 2014: Is Chidu Mr Natwarlal of budgeting?"},"content":{"rendered":"

\"P-CHIDAMBARAM\"<\/a>Vivek Kaul\u00a0<\/span><\/span><\/span>
\nThe finance minister P Chidambaram hasn’t crossed the \u201cred line\u201d of achieving a fiscal deficit target of 4.8% of the gross domestic product (GDP), that he had set for the government when he presented the last budget in February 2013. In fact, he has done even better and achieved a fiscal deficit of 4.6% of the GDP.
\nFiscal deficit is the difference between what a government earns and what it spends, expressed as a percentage of the GDP. There are essentially three variables that are involved in calculating the number. The amount the government earns. The amount the government spends. These two numbers form the numerator and their difference is then expressed as a percentage of the GDP.
\nHence, in order to achieve a targeted fiscal deficit, any of these three numbers can be manipulated. Chidambaram has worked on two of these three fronts to arrive at a fiscal deficit target of 4.6% of the GDP.
\nLet’s start on the expenditure front. The government expenditure is categorised into two kinds\u2014planned and non planned. Planned expenditure is essentially money that goes towards creation of productive assets through schemes and programmes sponsored by the central government. Non-plan expenditure is an outcome of planned expenditure. For example, the government constructs a highway using money categorised as a planned expenditure. But the money that goes towards the maintenance of that highway is non-planned expenditure. Interest payments on debt, pensions, salaries, subsidies and maintenance expenditure are all non-plan expenditure.
\nAs is obvious a lot of non-plan expenditure is largely regular expenditure that cannot be done away with. The government can at best delay paying subsidies. Hence, when expenditure needs to be cut, it is the asset creating planned expenditure which typically faces the axe and that is not good for the overall economy. If one looks at the numbers that is the direction they point towards.
\nThe planned expenditure target of the government was at Rs 5,55,322 crore. The actual planned expenditure has come in at Rs 4,75,532 crore, which is close to Rs 80,000 crore or 14.4% lower. This as mentioned earlier is not a good sign.
\nIf the government had incurred this expenditure the actual fiscal deficit would have come in at close to 5.3% of the GDP.
\nWhen it comes to non planned expenditure the target was at Rs 1,109,975 crore. It came in around 0.44% higher at Rs 1,114,902 crore. Most of the non-planned expenditure is regular in nature and hence, like planned expenditure, cannot be done away with. But there is one accounting trick that the government can resort to even on this front.
\nIt can postpone the payment of petroleum, food and fertilizer subsidies to the next financial year. Let’s take the case of petroleum subsidies for one. Rs 65,000 crore had been allocated on this front. The actual amount spent by the government has come in at\u00a0Rs\u00a085,480 crore. Of this amount a major chunk has gone towards payment of under-recoveries from the financial year 2012-2013 (i.e. the period between April 2012 and March 2013).
\nHence, the amount allocated is clearly not enough for the payment of petroleum subsidies. In fact, data from the Ministry of Petroleum and Natural Gas suggests that the oil marketing companies have reported under-recoveries of\u00a0a total of Rs 1,00,632 crore during the first nine month of 2013-14 (April-December) on the sale of diesel, PDS Kerosene and cooking gas.
\nSo clearly the amount of Rs 85,480 crore earmarked in the budget is not enough. This means that the payments that need to be made on this front have been postponed to the next year. A recent<\/span><\/span><\/span>\u00a0article in the Business Standard estimates that subsidies<\/span><\/span><\/span><\/a>\u00a0of around Rs 1,23,000 crore will be postponed to the next financial year.
\nThese are subsidies on petroleum, food and fertilizer which should have been paid up by the government in this financial year, but will be postponed to the next financial year. The article points out that the government will need Rs 1,45,000 crore to pay up all the subsidies but is likely to sanction only around Rs 22,000 crore. This leaves a gap of Rs 1,23,000 crore which will be postponed to the next financial year, and will become a huge headache for the next government.
\nThis essentially means that the government will not recognise expenditure when it incurs it, but only when it pays for that expenditure. This goes against the basic accounting principles, where an expenditure needs to be recognised during the period it is incurred.
\nLets now look at what Chidambaram and the government have done on the government earnings front to boost that number. The government has indulged in massive asset stripping to boost its earnings.\u00a0<\/span><\/span><\/span>A recent estimate in the Mint newspaper<\/span><\/span><\/span><\/a>\u00a0suggests that since January 2014, public sector banks have announced interim dividends of Rs 27,474.4 crore.
\nThese are banks in which the government had put in fresh capital of Rs 14,000 crore earlier in the year. So the government gives from one hand and takes away as much twice as more from another. Also, it is worth noting here that the public sector banks are currently on a very weak wicket.\u00a0<\/span><\/span><\/span>As Shekhar Gupta wrote in a recent column in The Indian Express<\/span><\/span><\/span><\/a>\u00a0\u201cYou read any of the recent data from the RBI, reputed market analysts and brokerages, economists, even from Uday Kotak on CNBC-TV18 this Thursday. You will know that the current stressed, restructured or non-performing loans in the Indian banking system amount to nearly 25 per cent of their total assets. Kotak put the aggregate at Rs 10 lakh crore out of total advances of Rs 40 lakh crore. Scared yet? He says the banks\u2019 total write-offs over the next couple of years could be Rs 3.5-4 lakh crore. The total net worth of all banks now is about Rs 8 lakh crore. In other words, half their net worth will be wiped out.\u201d
\nIn trying to meet the fiscal deficit target, Chidambaram has further weakened the Indian banking system. And then there is the case of moving money from government owned companies to the government. Take the case of the Oil India Ltd and ONGC buying shares in Indian Oil Corporation worth Rs 5,000 crore, a company which is expected to lose a lot of money during the course of this financial year. Hence, no investor other than the government owned companies would have bought IOC stock.
\nContinuing with asset stripping, the 90% government owned Coal India Ltd, recently declared a record dividend in January of Rs 18,317.5 crore. Of this, the government will get Rs 16,485 crore, given that it owns 90% of the company. The government will also get Rs 3,100 crore, which Coal India will have to pay as dividend distribution tax. This money should actually have been used by Coal India to develop more coal mines so that India does not have to import coal, like it currently does, despite having massive coal reserves. But that of course, hasn\u2019t happened.
\nThe icing on the cake was the sale of telecom spectrum which made the government richer by more than Rs 61,000 crore.
\nIt isn’t a good idea to meet regular expenditure by selling assets. How many people you know survived for long by selling their home, their car and other assets that they owned, to meet their daily expenditure? Ultimately to meet regular expenditure, regular income is needed. The sale of assets to meet current expenditure is not a great practice to follow. This is because assets once sold, cannot be re-sold.
\nIf all these factors highlighted above are taken into account, there is no way the fiscal deficit would have come in at 4.6% of the GDP. The number is at best a joke that Chidambaram and his UPA colleagues have played on the citizens of this country.
\nThe article originally appeared on www.firstpost.com<\/a> on February 17, 2014.
\n<\/span><\/span><\/span>(Vivek Kaul is a writer. He tweets @kaul_vivek)\u00a0<\/b><\/i><\/span><\/span><\/span>
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Kaul\u00a0 The finance minister P Chidambaram hasn’t crossed the \u201cred line\u201d of achieving a fiscal deficit target of 4.8% of the gross domestic product (GDP), that he had set for the government when he presented the last budget in February 2013. In fact, he has done even better and achieved a fiscal deficit of … <\/p>\n

Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2,18,28,31,33,67],"tags":[343,728,1290,1721,2377,2588,2615,2653,2788,3511,3837,3947],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Analysis<\/a> Chidambaram<\/a> Easy Money<\/a> Financial Crisis<\/a> Firstpost<\/a> Rupee<\/a>","qubely_excerpt":"Vivek Kaul\u00a0 The finance minister P Chidambaram hasn’t crossed the \u201cred line\u201d of achieving a fiscal deficit target of 4.8% of the gross domestic product (GDP), that he had set for the government when he presented the last budget in February 2013. In fact, he has done even better and achieved a fiscal deficit of…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/2624"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=2624"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/2624\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=2624"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=2624"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=2624"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}