Some Policy Issues Connected to Fiscal Deficit and Debt Management
FISCAL
DEFICIT, DEBT AND LIABILITIES OF THE GOVERNMENT OF INDIA
SOME
POLICY ISSUES
Why should Government run fiscal deficits at
all?
Investments require capital-
both equity and debt. Poor countries lack capital. Low capital is the result of
low gross domestic product and low savings. Low domestic savings leads to low
capital formation. And, the vicious cycle of low GDP, low savings, low investments,
low GDP, low savings can continue for decades unless broken.
The Governments and central
banks are assigned the responsibility by the society to break this vicious
cycle. To break this vicious cycle, investments must be made in physical capital-
in manufacturing and infrastructure, in human capital – in education, health
and skills, and in creating institutions of governance, regulation and
administration of justice.
The Governments have used different
means to raise the capital required. They have went about simply printing money.
They have the used/ directed the financial
system (central bank and banks) to create money and credit. They have also commandeered
the system to direct savings to themselves. Inability to keep printing of
currencies, within limits which system could absorb, led to run away inflation
in seventies and eighties and was generally abandoned. Too much money creation by
excessive borrowings from the central banks also had the same results.
Like most of the other
countries, Indian Government used printing of currencies and creation of money
for financing its expenditure and investment needs with predictable bad consequences.
System of issuances of ad-hoc treasury bills to RBI was abandoned in 1990s. The
system of automatic monetisation of deficits got completely stopped in the
first decade. This had good impact on inflation.
Savings of the people and expansion
in money supply by the financial system constitute the pool of capital
available. Normally speaking, this pool of capital is best used by the private
sector to make investment. However, there are market failures leading to
private sector not making investment in several desirable economic sectors. Investment
in human capital is one such area, where private sector has not been able to
take care of such investment needs, especially for the poor and disadvantaged
segments of society. Need for such investments is larger in the earlier phase
of development whereas investment in such merit goods is not made by the
private sector. Likewise, large infrastructure needs, which mostly represent
public goods, can also be made by the Governments and public sector.
Normal resources of the Government-
tax revenues- are insufficient to meet these investment needs. That justifies
the borrowing by the Governments or running fiscal deficits.
Should fiscal deficit limits not
be loosened for Capital expenditure?
Government’s primary task is
to deliver governance services, which are public goods, to people paid for by
revenues collected from taxes. This includes services to redistribute incomes
to poor, marginal and disadvantaged sections of Indian society. All these
services are of consumption nature and don’t lead to capital formation for
raising productive capacities of the economy. Therefore, government should
normally not run any fiscal deficit. In India, we have raised a large public
sector which is engaged in productive parts of the economy. Equity infusion in
such public sector companies was made by the Government. Government also
support creation of public infrastructure through its agencies. Such capital
expenditure also aids to the productive capacities of the country. Therefore,
capital expenditure to support investment in public enterprises and to fund
infrastructure creation through Government agencies seems quite justified for
being made from the public exchequer. This justifies raising of debt by
Government for incurring such expenditures.
Unfortunately,
over the years, Government’s borrowings have been increasingly used to fund
consumption expenditure and a considerable part of capital expenditure incurred
is actually no on creation of productive capital assets. In the year 2019-20,
the Government has budgeted a fiscal deficit of Rs. 703760 crore. Expenditure
budgeted as Capital Expenditure is only Rs. 338569 crore. It is only about 48%
of the fiscal deficit. As fiscal deficit represents borrowing, more than half
of the borrowings, even in terms of budgeting, is meant to be spent on
consumption expenditure. Almost similar was the situation in the year 2018-19
RE. Less than half of the borrowings only are meant to be used for capital
expenditure. Actual position usually turns out to be still worse. In 2017-18,
actual amount spent on capital expenditure was Rs. 263140 crore out of the
fiscal deficit of Rs. 591062 crore which was only 44.5%.
What exactly constitutes the capital expenditure of
the Government of India? The largest item of capital expenditure is a provision
of Rs. 1.03 lakh crore for Defence Expenditure. Buying of weapons and other
means of warfare are extremely important for national security but these don’t
raise productive capacity of the economy. This expenditure is a little less
than 1/3rd of entire capital expenditure. There are funds budgeted
for supporting infrastructure construction by Government agencies. Equity
contribution for Metro Projects (Rs.17.7 thousand crore), Capital Contribution
to Railways (Rs. 65.8 thousand crore), Capital Works of National Highways (Rs.
36.7 thousand crore) and other Road works of Ministry of Road Transport (Rs.
35.4thousand crore) fall in this class and certainly appears quite justified.
Capital outlay of Rs. 21.01 lakh crore is budgeted for Nuclear Corporation (Rs.3000
crore), Food Corporation of India (Rs. 1000 crore), for investments in
multilateral financial institutions (Rs. 5500 crore), for other financial
institutions like NIIF (Rs. 4000 crore), for construction of police housing (Rs.
1900 crore under Police Research) and for other contribution of Rs. 1260 crore
to CPSUs) seem partly for creation of productive economic capacity and partly
for supporting current operations. Capital expenditure under two broad heads-i.
Establishment (Rs. 7.5 thousand crore) and under Other Transfers (Rs.7.5
thousand crore entirely meant towards the capital assistance provided by the
Central Government to the States, mostly North Eastern and other Himalayan
States is clearly for aid/establishment kind of support. Therefore, only a
little more than half of the expenditure budgeted as capital expenditure is
actually justifiably capital expenditure. This leads to the conclusion that
less than 25% (only 48% of fiscal deficit is budgeted for capital expenditure)
of fiscal deficit is meant for productive economic investment in manufacturing,
services or infrastructure capital investment.
As
seen in earlier section, considerable amount of expenditure (largely of
consumption nature) is incurred outside budget (food subsidy bill paid through
NSSF, toilets/other assistance through Fully Serviced Bonds etc.). A number of
public interest motivated people propose that, in times of economic slowdown,
the Government should not worry about fiscal deficit and borrow funds for
incurring capital expenditure. It is impossible for the Government to incur
capital expenditure quickly. Going by the actual state of affairs, it is
difficult to justify raising of debt, or running of large fiscal deficit by the
Government, on the ground of making it for the capital expenditure.
How has gross pre-emption of financial savings affected
growth- Growth enhancer or growth depressing?
India’s savings rate of about
30% is quite a decent savings rate, though one can always wish that India saves
a lot more. However, it is only the financial savings of households and that of
the financial institutions which are available for funding the fiscal deficit
of the Government. These financial savings should ideally be used for funding
equity investment of real sector enterprises. Converting these savings into
debt does not really serve the cause of national development. Debt portion of
the enterprises and even that of the Government can be funded from credit creation
in the banking sector, including central bank. Trouble however is that the
financial savings of the household sector and financial sector are relatively
small. Household sector saves about 16-17% of GDP in all. Only a little over
1/3rd of it (6.6% out of total household sector’s savings of 17.19%
of GDP) in 2017-18, the last year for which data are available presently was
the net financial savings of the household sector.
When the Central Government
and the State Governments run large deficits- in excess of 6-7% together, a
large chunk of financial savings of people get diverted to meet this fiscal
deficit. In fact, entire financial system, consciously and unconsciously, get
tooled/rigged to serve this objective of landing these savings in the Government.
Today, Banks are required to keep about 20% of their deposits in government
securities. Insurance companies are also like this. LIC had investment corpus
of Rs. 28.75 lakh crore in the policy holders account as on 30th
June 2019. As much as 18.84 lakh crore (more than 65%) of this Corpus was
invested in “Government securities and Government guaranteed bonds including
Treasury Bills”. The Government runs large number of small savings schemes,
which also nudge household savings towards government debt. It exceeds Rs. 15
lakh crore.
The financial system works to
fund the Government Debt. In the process, it leaves little for the private
sector or for the productive investment in the economy. As the demand for
financial resources is much higher than its availability and a large chunk of
it gets directed towards financing government debt, the price for the financial
resources, interest, in the economy refuses to budge down. The spread between
the policy rate and the bank lending rates remain quite high (over 400 basis
points) in the country. There is rush today for Indian corporates to go abroad
to borrow. While the flow to commercial sector from the financial system is
down by over 70% in the first half, Indian corporates borrowed more than 30
billion dollars in external commercial borrowings and bonds in the year 2019.
The load of government
borrowings or the fiscal deficit needs to be reduced in the larger interest of
the economy instead of the fiscal deficit being relaxed even in the current
situation of economic slowdown.
Should the National Small Savings Fund (NSSF)
be wound down?
The Government of India
provides a number of savings avenues to individuals and households in the form
of national savings certificates, public provident fund account, kisan
vikaspatra, savings and other deposit facilities in the post offices and some
dedicated schemes for girl child, senior citizens and the like. These schemes
are operated mostly through the Indian Post Department, with its multitude of
post offices all over the country and some schemes through the banking system
as well. Aggregate deposits/balances in these small savings accounts at the end
of FY 2017-18 was Rs. 12.90 lakh crore. These are estimated to be Rs. 16.85
lakh crore at the end of FY 2019-20 as per BE 2019-20. Outstanding amount of
all small savings deposits, certificates and accounts as on 31st March 2019 was
estimated to be Rs. 14.81 lakh crore as per Revised Estimates given in the
Budget 2019-20. The small savings outstanding balances are estimated to be
growing by about 2 lakh crore every year during last two years.
The savings of people invested
in the NSSF, like their savings invested in the mutual funds, are in a way,
assets under management of the Government. As the AUMs with all the mutual
funds was about Rs. 25 lakh crore at the end of 2018-19, the AUMs under NSSF at
about Rs. 15 lakh crore make a significant share of people’s savings. Unlike
Mutual Funds though, the Government invests these savings inflows with the
Governments, now mostly Central Government as States have stopped taking these
inflows citing higher costs thereof, and of late, the PSUs and Authorities of
the Union Government.
There are primarily four
‘investment avenues’ for the small savings flows presently- a. investment in
special securities issued by the Central Government, b. investment in special
securities issued by the State Governments, c. investment in public enterprises
and authorities of the Government of India and finally d. meeting fiscal
deficit by providing cash balances. In addition, there is liability of the
Central Government towards accumulated losses in the NSSF. The Central
Government issues three kinds of special securities to the NSSF- a. Against the
Balances lying on 31.3.1999, the day when the NSSF arrangement came into being
(earlier the Government of India used to provide small savings loans against
accruals of small savings in the States from the Consolidated Fund of India, b.
against fresh accumulations in the NSSF from April 1, 1999 and c. against
redemption of special securities by the Centre and the State Governments. At
the end of March 31, 2018, the net investments in these three types of
securities was Rs. 64567 crore, Rs. 134969 crore and Rs. 284381 crore, in total
amounting to Rs. 483919 crore. Outstanding balance of securities issued by the
States as on 31st March, 2018 amounted to Rs. 507245 crore.
The Central Government started
making use of funds in the NSSF to provide loans to the Central Government
entities from the FY 2016-17. First such loan was made to the Food Corporation
of India when Rs. 70000 crore loan was extended (repayable in 5 annual
instalments) in lieu of food subsidy claims of the FCI for the year 2016-17.
During 2017-18, this practice was extended to other PSUs and authorities for
both investment as well as subsidy support purposes. Investment loans were made
to NHAI (Rs. 20000 crore), IRFC (Rs. 10000 crore) and Air India (Rs. 3000
crore). FCI was provided another loan in lieu of subsidy of Rs. 65000 crore,
while FCI paid Rs. 14000 crore. A loan of Rs. 8000 crore was extended to cover
housing subsidy claims. In all, the Loans to Public Agencies grew to Rs. 162000
crore at the end of 2017-18.
NSSF pays the interest cost on
various savings instruments. It also pays a commission charge to the Department
of Posts for managing the small savings portfolio. Interest from the securities
issued to the Central Government and State Governments make up the income of
the Fund. The Difference is loss for the NSSF. In 2017-18, NSSF’s income was
Rs. 95400 crore, whereas its interest expenditure was Rs. 91222 crore and its
management expenses (commission to the Department of Posts) Rs. 10822 crore
which resulted in a loss of Rs. 6643 crore.
Government had adopted a
policy decision many years back that the interest rates payable on different
savings instruments would be aligned to the market interest rate on similar
instruments. A small mark up only was to be added. A system got built in which
interest rates were to be adjusted every quarter. However, this system of auto
alignment of interest rates of small savings with the market rats, has not
practiced more in breach during last few years. Interest rates have been
virtually left untouched during the current financial year despite policy rates,
rates on central government securities and other market instruments having come
down notably. At the end of first quarter in June 2019, there was a nominal
adjustment of .1%. There was no change in the interest rates at the end of
September and December quarters. Interest rates on small savings instruments,
with the safest security, are the highest compared to savings instruments of
similar instruments even on nominal terms. If tax incentives associated with
such savings instruments are taken into account, the effective rates are150% to
200% of the instruments of similar nature.
During the current year, the
Government has announced corporate tax cuts and there is also considerable
shortfall in collection of excise, customs, GST and personal taxes. The
Government, however, has not revised borrowing programme, which remains pegged
to fund fiscal deficit of 3.3% of GDP only. It seems that the small savings
collections are being encouraged retaining the interest rates at higher levels
to fund the higher fiscal deficit of the Government.
The justification for small
savings schemes being run by the Government does not exist any longer. In this
day and age of digital banking enabled by omni-present mobile phone networks,
there is hardly any need for the Government to provide an avenue to park the
savings. The post offices met this need in 20th century, but are no
longer required to play this role. With almost universal Jhan-Dhan accounts
with the banking system (time has come to convert these zero minimum deposit
accounts into normal savings accounts to enable poor people to use entire set
of banking services), there is absolutely no necessity for the savings banks
account services to be provided by the post offices.
Besides running smaller fiscal
deficit, the Government should wind down the system of small savings.
Incidentally, no state government (barring two-three who are also interested to
get out) is now taking small savings these days. For many years, until the
beginning of the first decade, there used to be big clamour to fund the state
government deficits with small savings. All these savings are now landing with
the Government of India. These small savings also interrupt the system of rate
transmission in the banking system. Banks are unable to compete with these
rates but cannot bring down their rates for transmitting the monetary policy
signals as they would lose out the savings completely. The small savings system
distorts the savings system in the country.
The Government should
implement a five-year plan to wind up the small savings system.
Does Fiscal Deficit end up only financing
Interest Payments?
Government of India has been
following the policy of raising debt for financing its fiscal deficit by
raising it from the market at market rates of interest for more than two
decades. Present policy and practice are a far cry from the distortionary and
off market policies and practices of 20th century, which caused lot of
inflation, expropriated all savings for the Government and made the monetary
policy completely redundant. Very early in 1950s, the Government of India had
decided to issue adhoc treasury bills on the Reserve Bank of India mandating
the RBI to fund as much as resources as Government of India needed by creating
money. Rate of interest paid on such adhoc bills was also kept very low. RBI
was not generating any meaningful surpluses in this era. In 1990s, the practice
of issuing ad-hoc treasury bills was laid to rest. RBI and the Government
agreed that the RBI will not subscribe to primary issuance of debt of the Government
and would only operate a limited Ways and Means Advance (WMA) facility. RBI has
dismantled various instruments used earlier to ensure flow of funds to GOI
securities- very high SLR being one of these. Securities of the Government of
India and also that of the State Governments are now issued at price discovered
in the market.
The Government of India, on
its own account, is a very large debt issuer. A large stock of debt securities
have now built with GoI’s total Debt and Liabilities exceeding 45% of GDP.
Large pre-emption of savings and credit created in the economy by the
Government leads to interest rate ruling very high. All this has led to the
interest expenditure of the Government of India balloon. Government of India classifies interest payments
in five broad heads- interest on internal debt, interest on external debt,
interest on provident funds and other specific accounts in public account,
interest on reserves funds and interest on other liabilities. Interest on
internal debt constitutes bulk of interest payments now. In 2017-18, interest
on internal debt amounted to Rs. 487527 crore, which was 89.71% of total
interest paid (Rs. 543404 crore). Interest on market loans (usual dated
long-term market securities issued by the Government of India) amounted to Rs.
404132 crore (74.37% of total interest paid). Interest on External Debt is
quite small now as such loans on Government of India account are stabilized and
will decline going forward. Only an amount of Rs. 5951 crore was paid on this
account. As Provident Fund deposits grow at a steady rate only, interest
payments under this head are also small and growing at very slow rate. In
2017-18, it amounted to Rs. 33135 crore, which actually had a negative growth
rate of 2.48% over the interest paid under this head in 2016-17. Government of
India earns some money usually as premium on the government securities issued.
Likewise, it also earns some interest on market loans. The Finance and Accounts
state this income on the revenue side, whereas Budget Papers and Analytical
Reports display the interest payment net of these incomes. In 2017-18, such net
receipts were about Rs. 14755 crore, which when netted made the net interest
expenditure to be around Rs. 528600 crore.
Interest on Other Obligations
actually represent the result of by-pass on fiscal deficit financing attempted
from time to time by the Government of India. Interest paid on this head during
2017-18 was Rs.15975 crore. It included interest on Petroleum Bonds (Rs. 9583
crore), interest on special securities issued to Food Corporation of India (Rs.
1319 crore), to Oil Marketing Companies (Rs. 407 crore), interest on bonds
issued to fertiliser companies (Rs. 1174 crore) and interest paid to SBI for
the GoI bonds subscribed by SBI for enabling GOI to invest in the rights issue
of SBI (Rs. 835 crore). Almost all of these obligations were taken on by the
UPA Government between 2004-05 to 2012-13). NDA Government has also resorted to
this route for recapitalizing the Public Sector Banks and also other financing
institutions like EXIM Bank and IIFCL ltd. These bonds were first issued in
2017-18. First interest obligations for this came up for payment in 2018-19. As
further bonds were issued in 2018-19 and 2019-20 and by now the amount of bonds
issued exceed Rs. 215000 crore, interest payment on these obligations would
exceed entire interest payment made during 2017-18 in this head.
Expenditure on interest
payments is the largest head of payment and a little less than 25% of total
expenditure of the Government of India. About 1/4th of all the
resources which the Government of India raises every year, tax, non-tax and
debt all taken together, goes only to service interest on the debt and
liabilities undertaken by the Government of India in previous years. This is an
extra-ordinary large pre-emption of resources. In 2017-18, interest payment at
Rs. 528900 crore out of total budgetary expenditure of the Government at Rs.
2141973 crore was at 24.6% of total expenditure. This has seen minor decline in
the year 2018-19 as per the provisional numbers released. In this year, net
interest payments amounted to Rs. 582675 crore out of total expenditure of Rs.
2311422 crore exceeding 25% of total expenditure at 25.21%.
With the Government being in
no position to curtail fiscal deficit and issuance of liabilities outside the
Budget also continuing unabated, there is every likelihood that the interest
payment in 2019-20 will also exceed 25% of total expenditure.
Combined expenditure of the
Central Government (actuals) in 2017-18 on interest payments (Rs. 528952 crore)
and establishment (Rs. 473031 crore) was Rs. 1001983 crore, which turned out to
be in excess of 45% of the total expenditure of Rs. 2141973 crore incurred. It
needs to be remembered whenever we talk about the ability of the central
government to adjust its expenditure that very close to half of all expenditure
is simply not in control of the central government. It is the first charge on
the revenues and debt raised and has to be so paid.
Mostly the interest burden
implications of running large fiscal deficits are ignored. Decisions to
recapitalize the PSBs’ equity by issuing special securities without considering
the net impact on fisc in terms of the interest paid on these bonds are
sub-optimal decisions.
Massive burden of interest
payment is a good reason to consider moderating fiscal deficit and debt
overhang.
Is India’s credit rating affected by the large
deficit and debt overhang?
Sovereign credit ratings are
quite material in determining access to internal credit and also the price at
which such credit can become available to sovereign, sub-sovereign and private
corporates. Indian corporates- in public and private sectors have borrowed
close to $30 billion dollars in 2019 from international debt markets. India has
investment grade sovereign debt rating from all the major rating agencies.
Sovereign credit rating works as the base of credit rating for the
corporations. No corporate from India can get a rating better than the
sovereign’s credit rating.
Fiscal Strength is one of the
three major rating parameters, which in case of Moody’s feeds in determining
Government’s Financial Strength. India’s Financial Strength has been rated
consistently for quite sometime at M+ level i.e. a medium strength. The biggest
weakness in the metric of Fiscal Strength is very large debt burden. India’s
general government debt and liabilities (a little less than 70%) is one of the
highest in comparably rated sovereigns. Deterioration in fiscal metrics is
considered one of the largest negative credit event. Therefore, worsening
fiscal deficits and/or perception that India’s is unlikely to stick to its path
of moderating stock of debt and liabilities to less than 40% for the central
government by 2024-25 is likely to put India’s credit rating at a risk. Moody’s
which upgraded India’s rating to one notch further in the investment grade has
recently placed India on negative outlook. It would be big negative if India’s
credit rating were lowered to the lowest investment grade by the Moody’s.
Should the FRBM Act be revisited again?
Ever since FRBM Act was
enacted in 2003-04, India has revised and reaffirmed its commitment to that
elusive fiscal deficit target of 3% of GDP three times. The last restatement
was made in 2018-19. FRBM Act was amended by the Finance Bill 2018 to very
specifically state two commitments. One, India would reduce its fiscal deficit
to 3% by FY 2020-21 and maintain it at or lower level thereafter. Second, Union
Government’s Debt and Liabilities would be brought down to less than 40% of GDP
by FY 2024-25.
Fiscal developments in last
two financial years since then have not gone to ensure that these two statutory
commitments could be adhered to. India revised its fiscal deficit from 3.2% in
FY17-18 BE to 3.5% in FY17-18 (which was also the actual) and announced its
headline fiscal deficit at 3.3% for FY 2018-19 (there were some expenditures/
investments pushed off-budget, which has been explained above). Expectation was
that there would be some further compression in 2019-20 and finally the target
of 3% would be achieved in FY2020-21. However, FY 2018-19 turned out to be
fiscally more difficult than planned. Headline Fiscal Deficit (the number in
the budget papers representing the fiscal deficit in the Consolidated Fund of
India) was revised to 3.4% for FY 2018-19 (RE) and BE fiscal deficit for
2019-20 was first announced at 3.4% in the Interim Budget and later on brought
down to 3.3% in the final budget presented in July 2019.
Considering the revenue and expenditure
performance in FY 2019-20, it is unlikely that headline fiscal deficit would be
anywhere less than 3.5%. Real fiscal deficit will be much higher. I have
analysed this in the next section. Given further that the revenues are unlikely
to see any sharp uptick in next FY 2020-21 and flexibility to compress
expenditure is almost not available, it is almost impossible to keep even the
headline fiscal deficit to 3.0% for FY2020-21.
Likewise, the debt and
liabilities trajectory is moving quite in reverse direction than the one which
was possibly expected while determining the deadline of 2024-25 for achieving
the goal of 40% debt to GDP ratio.
It seems quite likely that the
FRBM Act will be amended again to push both the fiscal deficit goal of 3% to
let us say 2025-26 (to coincide with the new five yearly budgetary cycle with
finance commission recommendations) and debt and liabilities goal of 40% to,
let us say, 2030-31. It would be sound more convincing if this fiscal deficit
goal is defined to include all budgetary and off-budgetary liabilities (which
currently are around 4.5% of GDP. A five-year roadmap for brining real fiscal
deficit down from 4.5% of GDP to 3% of GDP is quite reasonable and rigorous. A
lot of people would become somewhat more cynical about Government’s real
commitment for fiscal consolidation considering non-achievement of this goal
even after 15-16 years of its original adoption and it being pushed for newer
date every 5-7 years. However, if the Government were to disclose and incorporate
all its fiscal expenditures into the fiscal deficit and state the fiscal road
map (.25 to .3% reduction consistently every year) in the budget, the fiscal
correction and consolidation would sound more credible.
Debt and Liabilities ratio to
GDP is more autonomous. If the Government were to reform the small savings
regime and lay down the fiscal consolidation path as suggested above, it is
quite likely that the Debt to GDP ratio would also be achieved in this
time-frame, most likely even earlier.
SUBHASH CHANDRA GARG
NEW DELHI 15/01/2020
https://carnegieendowment.org/chinafinancialmarkets/80054
ReplyDeletewhether it is debt or printed money, if it is not going to create productive supply which matches natural demand will end up in inflation. Govt. borrowed money, just delays either higher taxes or eventually higher base money. But borrowing itself will create high fragility and creates a very high base interest rate for the rest of the economy. This higher interest cost makes our production costs & capital costs so high which will result in higher inflation.
On small savings: 15 lac crores is very small comparing to total bank deposits of 140 lac crores(RBI, M3 report). This safety net protects vulnerable sections of society (the 95% bottom of the pyramid). This at least protects basic demand and lives of many poor people.
On Autonomy of borrowing: By linking to a highly fictitious/projected/estimated GDP, Govt. in current and future can become irresponsible at some point in time and we may end up in a situation like zimbambwe, Argentina, venezuela etc.
On the current economic situation: Sell all Govt. land in cities and towns, you can raise enormous money. Sell All PSUs. Raise taxes on the savings of the rich. e.g. Higher tax on interest income of more than 10 lacs. Bring inheritance tax which is there in all mature capitalist economies. The property taxes in the rich countries are so high. Have high property and land taxes. Tax unused land heavily.
The problem with the current economy is lack of demand. Please write an article on how to raise the demand(naturally, the incomes of 125 poor and middle income people) on a sustainable basis. If private sector often fails and cannot employ 80 Crore working age people, where they go. PF accounts are hardly 5 crores. How the 75 crore people can earn money?? With Technology and Big enterprises, where is the level playing field for 75 crore individual people. What kind of goods and services these 75 crore people have to produce which the big enterprises can't produce at lower cost.
This comment has been removed by the author.
ReplyDeletebtw, this is the most detailed analysis of the fiscal deficit..
ReplyDeleteThankyou Mr Garg, now it is getting clearer why there was unease with your presence in MoF. My respect for your thinking has increased, as you seem to be a hawk, fiscal disciplinarian. Infact, thus far my thinking has been that the govt is doing the right thing by not giving in to market demand of high fiscal deficit.. they just need to enable, or lower the factors of production.. by controlling deficit, they could well be lowering cost of capital.
it is a different issue that cost of equity has increased.
Sir, Do you live in Delhi? I wish to meet you to discuss some points raised by you.Give me your mobile no. or email ID
ReplyDeleteIn order to reduce government expenditure and to stimulate growth, you should, now, engage your self in generating electricity at Rs 0 per unit in every house owned by every Central Government pensioner. hope you will install 5 to 10 kw rooftop solar system in your ancestral house in Rajasthan.
ReplyDeleteIf this man is a fiscal disciplinarian then would have discussed the DA paid to government employees which runs ahead of actual expenditure incurred , adding to the cross subsidy in rations. Just lost the job showing his anger. sixth and seventh pay commissions are day light robbery which was financed by spectrum auctions, robbing the bank deposits claiming the license is worth the money. now banks are in deep water in lakhs of crores . Another subramanaim swamy , educated in Harvard should know 65% tax revenue of federal government is from direct taxes like IT and social security , in India for free TV coverage says remove IT totally.
ReplyDelete
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