Rabu, 26 Maret 2014

India's Economic Manifesto - 1

Continuing from the earlier post, we will attempt to understand, and then co create an economic manifesto for India. This is in the context of the upcoming Indian elections, where this blogger believes that

  • Economic upliftment is the most important objective for the nation.
  • Political parties are either completely ignoring, or not doing justice to an economic manifesto 
  • Where they are publishing manifestos, they are mouthing platitudes like we will create X million jobs, we will abolish poverty, etc etc without a word as to "how".

This series of posts cover only the economic tasks before the nation - not social or political or other  issues which are also important. Since this is a business blog, and this blogger believes that economic advancement is the most important priority for the country, we will focus exclusively on economics.

In order to consider what should be the strategy ahead, we should firstly understand where we are. This post explains India's current financial situation. This is grossly simplified, not exactly accurate, with my own classifications , avoids technical jargon, and is not as economists would put it - but this is broadly correct and will enable us laymen to understand the country's position. They represent only the Central government position - not that of the states.

India's central revenues for the year 2013-14  were as follows

 
Revenues           Rs crores
Income Tax            629,871
Customs            175,056
Excise            179,538
Service Tax            164,927
Non Tax Revenues            193,226
Capital Receipts              36,643
Less States' share          (322,880)
Total Revenues   1,056,381



 India's central expenditure in 2013-14 was as follows



Expenditure      Rs crores     Rs crores
Interest        380,066
Defence        203,672
Food Subsidy           92,000
Fertiliser Subsidy           67,971
Petroleum Subsidy           85,480
Rural Devp Subsidies (incl NRGEA)           78,452
Pensions to Govt staff           74,076
North East Subsidies           24,262
Police           43,148
All Others        144,227
Non Productive Expenditure         1,193,354
Education           67,398
Health           30,145
Railways           30,223
Roads           21,399
Agriculture           17,557
Industry           22,393
All Others           88,926
Productive Expenditure            278,041
Grants to States for Plan Expenditure            119,039
Total Expenditure        1,590,434
Note : Classification of "productive" and "non productive" is my own

As a nation, our revenues are Rs 10 lakh crores and our expenditure is Rs 15 lakh crores. So every year we borrow Rs 5 lakh crores to make up the shortfall. The primary reason why there is inflation of 10% + in our country is this.

In understanding this situation, the following explanations may be helpful

  • The interest line in the expenditure is the cumulative effect of all these deficits which have built up over the years and we keep adding to the burden every year. In the short run, we can do nothing about this item
  • The states' share, both in the revenues and in the funding of plan expenditure is constitutionally mandated. This cannot be touched, in terms of percentage.
  • This represents only the Central position. They do not consider state revenues and expenditure . Most states run bigger deficits than the centre and have major subsidies and freebies in their expenditure. There is no ready consolidation of central & state finances - so I am not able to present that position to you.

You can now perhaps understand why this should be the starting point for any manifesto. If a party says they will spend $1 trillion on infrastructure (as the Congress Party said yesterday), you can clearly see that this is bullshit - there is no money. This is also the reason why the BJP plank of replicating the Gujarat model is questionable - how will they create infrastrcuture when the financial position is as bad as it is now - there is no money to spend on infrastructure unless hard decisions are taken on non productive expenditure. No political party is explaining this reality to the voters.

We will begin our own manifesto from here. We will not only present a manifesto, but also how this can politically be sold to the voters - for without that, all this will only be theory.

Readers are  invited to offer their ideas.
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