Union Finance Minister P. Chidambaram’s budget estimates for 2014-15 show that his successor post-elections will have to allocate close to 80 per cent of the Centre’s net tax revenues to interest payments on the UPA Government’s borrowings, subsidies and pensions of government employees. In other words, the next government will have barely 20 per cent tax revenues for spending on governance and development.
Total borrowings requirement for 2014-15 is budgeted at Rs.5,96,083 crore or 4.6 per cent of gross domestic product (GDP).
Further, the budget papers also say the option of certain “one-time” receipts budgeted in 2014-15 has been all but exhausted, and will not be available in the subsequent two years. In 2013-14, a low-economic growth year, the finance minister could extract “dividends and profits” of Rs.88,188 crore from PSUs (public sector undertakings), higher than the budget estimate of Rs.73,866 crore.
“Subsidies are the most important factors in determining the success of government in meeting its fiscal targets.... The government will have to align the pricing policy for subsidised goods to ensure that the subsidies remain affordable, and it is extremely essential to put in place proper systems for better targeting,” the Fiscal Responsibility and Budget Management (FRBM) Act statement Mr. Chidambaram laid in Parliament on Monday says. “The food subsidy regime in the coming years will have to undergo a massive overhaul... Urgent price correction for urea is needed.”
The FRBM statement further delineates Mr. Chidambaram’s legacy: “As per budget estimates presented in the Interim Budget 2014-15, there is need for a correction in the composition of expenditure mix to achieve the set targets”. “Going forward, necessary changes in the programme implementation mode will be made to achieve higher capital formation either directly by government or through implementation agencies.” The finance minister has addressed India’s short-term credibility but he has presented a grim prognosis for the medium-term, and his legacy to the next finance minister will not be an easy one, finance ministry sources told The Hindu .
Moody’s Investors Service retained the stable outlook rating but said of the Interim Budget “the government’s large debt burden requires that a significant portion of its limited revenues is channelled towards interest payments”. “In addition, fiscal deficits have macro-economic costs, as evident in India’s recurrent inflationary and balance of payments pressures”.
