Mumbai: The scale as well as speed of debt accumulation of the government is mind-boggling. Before the current fiscal runs out, the Centre would have contracted public debt at the rate of Rs 591 crore per day. This will gallop to a daily rate of Rs 746 crore during 2009-10, going by the projections in the interim budget.

If this scenario comes true — when it comes to borrowings, expectations are seldom belied — the public debt of the Union government will jump from the already high figure of Rs 21,36,085 crore estimated for end-March 2009 by 13% to Rs 24,08,502 crore during 2009-10; in a short span of six years, public debt would have risen by as much
as 103%.

The actual debt burden is much more onerous; inclusive of other internal liabilities, the outstanding liabilities of the Centre will zoom to Rs 34,06,322 crore by the end of next year from Rs 31,35,775 crore this fiscal and only Rs 17,36,378 crore five years ago.

The per capita public debt is reckoned at Rs 18,510 now and the per capita liabilities at Rs 27,173 compared with the per capita income of Rs 38,084.

Hypothetically speaking, if the government were required to retire all its borrowings, as much as 49% of the annual income of the average man will have to be earmarked to this end in the case of public debt and 71% in respect of all the liabilities.

In a macro sense, the debt problem has taken a more favourable turn.

Thanks to sustained high rate of economic growth in recent years, the ratio of public debt to GDP has slid to 39.4% in the current year from 43.1% in 2003-04, while the ratio of all liabilities to GDP has fallen to 57.8% from 63%. Still, the debt-GDP ratio is too high for comfort.

However, the real cause for worry is the misuse of debt funds increasingly for current consumption rather than for capital formation.

This is reflected in the widening chasm between assets and liabilities of the Central government.The excess of liabilities over assets which was already high at 48% in 2003-04 has risen to 49.6% this fiscal.

By the end of 2009-10, liabilities which do not enjoy the backing of assets is expected to cross the 50% mark to stand at 51.9%.

In other words, while borrowings have proceeded at a fast pace, capital outlays and loans & advances to further investment have lagged behind. This is a sequel to incurring a huge revenue deficit alongside a fiscal deficit.

The share of the revenue deficit in the fiscal deficit is more than 70%, and the upshot of this is a glaring asset-liability mismatch.

If the revenue deficit can be scaled down if not reduced to zero as spelt out in the Fiscal Responsibility and Budget Management Act, it would hold out a prospect that borrowings would be deployed to finance asset creation.

The past five years have been missed opportunities in this respect and have queered the pitch for the present fiscal crisis.

Delving deeper in to the interim budget, there appears to be an element of wishful thinking in regard to estimates for other liabilities to be incurred by the Centre.

Inclusive of internal liabilities, such as small savings, incremental growth of debt from all sources is envisaged to slacken Rs 270,547 crore during 209-10 as against a spurt of Rs 298650 crore this year, as per the revised estimates. Thus, unlike the public debt, the daily rate of overall debt pile-up is set to slowdown to Rs 741 crore in the next financial year from the current year’s Rs 818 crore.

But the underlying arithmetic is rather shaky. The vote-on-account budget visualises a drop in the outstanding amount of other liabilities by Rs 1,870 crore next year in contrast to a projected sharp rise of Rs 82,955 crore in this fiscal.

It would not be surprising if the overall tempo of debt build up accelerates to around Rs 900 crore per day from Rs 818 crore as in the case of public debt where the daily average borrowing is slated to be higher at Rs 155 crore compared with this year’s level of Rs 591 crore.

The details of the statement on liabilities and assets in the interim budget make an interesting reading.

Between 2003-04 and 2008-09, market loans have zoomed from Rs 707,965 crore to Rs 13,58,940 crore and is projected at Rs 16,77,587 crore next year.

Sum earmarked for capital outlays has also gone up but at a somewhat lower pace – from Rs 433,723 crore to Rs 806,024 crore, while for 2009-10, it is pegged at Rs 900,934 crore.

The recourse to foreign aid is still small though the amount has leapfrogged from Rs 46,124 crore to Rs 121,634 crore in this fiscal and is slated to jump to Rs 900,934 crore in the coming financial year.

source: DnaIndia

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