The deficit Problem (The Hindu)
Mains Paper 4: Economy
Prelims level: Fiscal deficit
Mains level: Issues relating to Growth and Development - Public Finance,
Taxation and Black Money incl. Government Budgeting.
- Nearly 18.5 per cent of the Centre’s fiscal deficit the gap
between its total spending and revenues from taxes and other non-debt
sources in 2019-20 is expected to be financed from small savings schemes
collections, as against 12.6 per cent in 2016-17 and only 2.5 per cent in
- The National Small Savings Fund (NSSF), which aggregates the
receipts from these mainly Post Office-run schemes, invested Rs 70,000 crore
in the Food Corporation of India (FCI) during 2016-17 and another Rs 65,000
crore in 2017-18.
- All this points to the fact that the Centre is increasingly taking
recourse to non-market borrowings for meeting not only its own deficits, but
also the requirements of parastatals from the FCI and National Highways
Authority of India to Air India.
Objectives of the NSSF
- The NSSF monies have to ultimately be invested somewhere in order
to pay small savings subscribers.
- If these are deployed in government securities, why should that be
- This argument, however, misses the point.
- The real issue today is with deficits per se and not how they are
financed. Sajjid Chinoy of the American investment bank, J.P. Morgan, has
estimated India’s total public sector borrowing requirement which includes
that of the Centre as well as state governments and parastatals at 8.2 per
cent of the GDP during 2017-18.
- Given that the total financial savings in the economy, according
to official data for the same fiscal, amounted to 19.9 per cent of the GDP.
- It means the public sector is cornering well over a two-fifths
share of the annual surplus with households and firms today.
- There is a cost to deficit-induced borrowings.
- For the coming fiscal, the Centre’s own interest payments
including on so-called special securities issued to public sector banks for
recapitalisation or to the FCI, fertiliser and oil marketing companies in
lieu of cash subsidy are budgeted at Rs 6,65,061 crore, which is 33.6 per
cent of its revenue receipts and 23.9 per cent of total expenditures.
Clearly, this cannot go on.
- The Narendra Modi government squandered the political capital it
had to fix the deficit problem, whether through aggressive rationalisation/targeting
of subsidies or reforming state-owned undertakings and banks by outright
privatisation rather than recapitalisation.
- The next government will probably not have the luxury of
Q.1) INDRA is a military exercise between India and which of the following
(a) United States
Q.1) Does it matter beyond a point, then, whether this cornering is
happening via banks and bond markets or the NSSF?