Govt will borrow Rs80 lakh every minute this year

The dizzy pace of piling up debt funds is expected to continue in the next fiscal.

The fineprint in the budget throws up the interesting fact that the Centre is projected to incur public debt at the rate of Rs1,154 crore per day, up from Rs1,033 crore estimated for the current year and Rs747 crore just four years ago.

Inclusive of other liabilities, the daily borrowing will be Rs1,155 crore in 2011-12, or Rs80 lakh every minute, compared with Rs1,132 crore this year and Rs818 crore in 2007-08.

The narrowing in the rate of daily borrowing, in terms of public debt and all liabilities, hinges on the fact that in 2011-12, tapping other sources of borrowing like small savings etc, may be on a much smaller scale — the anticipated increase being a mere Rs310 crore as against Rs36,300 crore during the current year.

The budget has claimed that the process of fiscal consolidation had resumed after a two-year pause and would be continued in the coming year.

But, combing through the fiscal policy statement, what emerges is quite a different picture — debt financing is the preferred option. Reliance on borrowings is on a massive scale, averments to the contrary.

The figures speak for themselves. The accumulated public debt of the Centre has leaped from Rs19,20,390 crore in 2007-08 to a revised Rs28,60,191 crore by the end of March 2011 and would increase by as much as Rs421,274 crore to a projected Rs3,281,465 crore.

Besides public debt, the government will contract other liabilities too; inclusive of these, the total liabilities would zoom to Rs4,352,389 crore next fiscal from this year’s Rs39,30,805 crore.

Every Indian carries an onerous debt burden and it is rising sharply year after year. The per capita public debt is placed at Rs24,116 this year compared with Rs16,875 in 2007-08 and it is forecast at Rs27,300 crore in 2011-12.

Of course, the per capita liabilities are higher, in view of the reliance of the budget on small savings and other avenues to garner funds.

To place the debt burden of the common man, it is necessary to point out that, in nominal terms, per capita GDP was Rs45,772 on 2008-09, Rs52,421 in 2009-10 and Rs61,485 crore in 2010-11.

In the medium term fiscal policy statement that was issued along with the budget 2011-12, the government took pains to emphasise that it was faring well in its efforts to curb debt accumulation and pointed out that, as a proportion of GDP, total liabilities will drop to 44.2% by the end of next year from 45.3% in 2010-11.

In this calculation, the government does not factor in the amount under market stabilisation scheme and that portion of the National Small Savings Fund which is invested in state securities.

In reality, however, they do constitute liabilities and find a place in the statement of liabilities and assets in the receipts budget.

Inclusive of these, the ratio of total liabilities to GDP would be 49.9% this year and estimated at 48.5% in the ensuing fiscal.
Of course, this ratio had ruled well above the 50% mark in the recent past.

The improvement stems from the high rate of growth in nominal GDP - thanks to high rate of real economic growth and to high rate of inflation. As we have seen, there has been no let-up both in the stock of debt or in its yearly incremental growth.

Large-scale borrowings may not be bad per se if they were deployed for productive purposes. Debt proceeds have been used mainly to finance current expenditure.

In the fiscal policy statement, the government seems conscious of the misallocation of borrowed funds and stated, that it “will make further efforts for not using debt receipts for financing non-plan expenditure, especially non-plan revenue expenditure”.

But, substantial diversion of borrowings for bridging the revenue account gap has been a recurrent feature, so much so that there is a gross mismatch between liabilities and assets.

For example, in 2007-08, as against the total liabilities of Rs28,37,125 crore, asset creation, representing final outlays and loans and advances, was of the order of Rs15,71,668 crore, and the difference between the two as high as Rs12,65,458 crore or 45%.

This mismatch is expected to worsen in 2011-12 with the ratio of assets to liabilities envisaged at 54%.

In simple terms, assets which did not have the backing of assets was 45% four years ago and is projected to be sharply to 54% next year.