GauravBlog Logo

A Lion’s eye on the Bulls and Bears

“In India, companies may fall sick, but promoters rarely do!”

Gaurav's Blog


Interim Budget announced today…confirms fears that this Pig of a growing fiscal deficit is getting hungrier!

Pranab Mukherjee,after 25 years,yet again announced our Interim Union Budget this morning….It was a fairly drab speech and clearly as general elections are fast approaching he lacked the mandate to announce big ticket reforms…..Nevertheless I was searching for some economic stimulus or some forward thinking on challenging issues…I was dissappointed….Our Political and Bureaucratic leaders simply lack that quality of  leadership and vision to take us forward 

Below is the Union Budget at a Glance…as was the fear,the revised estimates for the Fiscal Deficit in the Current ongoing year FY 09 has simply flown out of the Window…At Rs 326515 crs (US $ 67 Billion) It’s 6% of the GDP,against an earlier estimate of a controlled Rs 133287 crs (US $ 27 Billion) or 2.5% of GDP…that’s around 145% over earlier estimates…this is because of Oil surging to a high US $ 147/barrel in August 2008 from levels of below US $ 70 earlier in 2008…India Imports over 100 Million Tonnes of Crude Oil every year and the depreciating Rupee (20% in 2008) compounded the problem

But what really worries me is that the Estimates given for FY 10 show that despite Oil dropping to lows of US $ 40/barrel now,in absolute terms the Fiscal Deficit is shown as Rs 332835 crs (US % 68 Billion) and still high at 5.5% of the estimated GDP

This Fiscal Deficit is a Hungry Pig,eating away our resources…no amount of Lipstick is going to make a Pig attractive !…and though we say,sweat like a Pig,Pigs don’t actually sweat !…but we do ! when we look at this Pig of a Rising Fiscal Deficit ! 

This led me to questioning why ? was it because of escalating Non Plan Expenditure ?…Yes…but which Component ?…Defence,Interest Payments or Other Revenue Expenditure of Subsidies (Fertiliser,Fuel and Food)…..Interesting Revelations followed that throw up a few questions

  • Despite Borrowings shooting up by nearly 145 % from earlier estimates of Rs 133287 crs in FY 09 to Rs 326512 crs,why has Interest Payments shot up merely by less than 1 % to Rs 192694 crs from Rs 190807 crs ?
  • Borrowings as a % of Total Receipts has shot up to 36.24% against earlier estimates of just 17.75% in FY 09…Even in Estimates for FY 10 the Percentage stays a High of 34.92% …What are the Implications ? 
  • If Interest Payments have not gone up then what component of Non Plan Expenditure has gone up ?…as Non Plan Expenditure shows a surge of 21.77 % in FY 09 Estimates from earlier Rs 507498 crs to the revised Rs 617996 crs
  • We know Borrowings have surged but specifically how has this increase of 145% in Fiscal Deficit revised estimate for FY 09 been financed ?

The brutal fact is that India has played into the hands of Oil Speculators in 2008…Oil Companies are carrying huge Inventory losses as they had booked Oil at high prices over US $ 100 for long term contracts….The Government and the Corporate Sector simply did not read the Oil Price Rice Bubble Scenario…India is paying a heavy price for this…It’s Rupee has weakened 20% against the US $ in 2008 as a direct consequence…Ironic really as the US $ itself is facing challenging times with USA grappling it’s worse financial and recession crisis in a hundred years

So how has this Fiscal Deficit Increase been financed ?…well we can see that Borrowings have surged…when I dived into the Borrowings I found that the Components of Market Loans and Short term Borrowings has surged from earlier estimates of FY 09 of Rs 100571 crs and Rs 12429 crs respectively to revised estimates of  Rs 261972 crs (up 160% !) and Rs 57500 crs (Up 363% !) respectively

Then why has Interest payments not gone up ???…Anybody???and if they have not then what has ! in Non Plan Expenditure…we compute that Other Revenue Expenditure,read as Subsidies and Defence has shot up by 43% in FY 09 from earlier estimates of Rs 257545 crs to revised estimates of Rs 369096 crs…a day or two ago I blogged on the huge and specific increase in fertiliser subsidies

In fact revised Defence Revenue Expenditure Estimates for FY 09 are Rs 73600 crs ,up from Rs 57593 crs…they move higher to Rs 86879 crs for FY 10

Revised Estimates for Subsidies for FY 09 are now Rs 129243 crs,up from Rs 71431 crs….they move lower to Rs 100932 crs for FY 10

Special Securities ,in lieu of Subsidies,of Rs 75942 crs and Rs 20000 crs have been issued to Oil Marketing Companies and Fertiliser Companies respectively in FY 09

Revised Estimates for pension,police and social services expenditure too have shot up significantly for FY 09  

The worry is that these Non Plan Revenue Expenditures,other than Interest, continue to be estimated as High as Rs 374225 crs in FY 10,despite Oil dropping to below US $ 40/barrel…This could possibly mean that we are carrying high inventory costs into FY 10…truly became suckers in the 2008 Oil Price Rise Bubble…Our Market Loan Borrowings too are estimated to increase to Rs 308647 crs in FY 10

This is the worrying factor…Higher Expenditure….Lower Revenues….and the deficit funding through increased Borrowings….Clearly the next government after the forthcoming general elections has it’s hands full….they will have to find some way of replacing deficit funding through Borrowings with Equity….Clearly building up a strong case for further Privatisation,Pension and Insurance reforms and IPOs of PSUs

One more Pointer…to stimulate the economy,you would want to stimulate consumption too…..interest rates will be eased…so expect rate cuts in CRR and SLR too  

If you observe the lower %s of  Primary Deficit as a % of GDP,you can gauge the impact of Interest Payments on the Fiscal Deficit…all the more reason to control and reduce Borrowings…but as I have stated before we have a peculiar situation that when borrowings have surged through market loans and short term borrowings the interest payments as part of non plan expenditure have not 

The Writing is on the Wall….2009 and even ,I daresay,2010 are going to be very challenging years for the Indian Economy….Coalition Era Politics will continue to make decision making all that more tough and not unanimous, at the Centre,regardless of who will form the government after general elections two months down the line

Equity Markets will continue to be range bound,and despite short rallies,will maintain a downward bias


        Budget at a Glance  

  (In Crore of Rupees)


  2007-2008 Actuals

2008-2009 Budget Estimates


2008-2009 Revised Estimates

2009-2010 Budget Estimates

1.    Revenue Receipts





2.    Tax Revenue
      (net to Centre)





3.    Non-tax Revenue





4.    Capital Receipts (5+6+7)$ 





5.    Recoveries of   Loans





6.    Other Receipts





7.    Borrowings and other





8.    Total Receipts  (1+4)$





9.    Non-plan Expenditure      





10.   On Revenue Account  of         which,





11.   Interest  Payments





12.   On Capital Account





13.   Plan Expenditure





14.   On Revenue Account





15.   On Capital Account





16.   Total Expenditure





17.   Revenue Expenditure





18.   Capital Expenditure





19.   Revenue Deficit (17-1)





20.   Fiscal Deficit





21.   Primary Deficit (20-11)





* GDP for BE 2009-2010 has been projected at Rs.6021426 crore assuming 10.97% growth over the advance estimate of
   2008-2009 (Rs.5426277 crore) released by CSO.

$ Does not include receipts in respect of Market Stabilization Scheme.





4 thoughts on “Interim Budget announced today…confirms fears that this Pig of a growing fiscal deficit is getting hungrier!”

  1. Hi Gaurav,
    Useful analysis that! We sure are mixing up current account with capital account, and planned receipts with non-plan expenditures! That is terrible. Look also at the kind of poverty and employment schemes being launched every other day. Poverty alleviation in an election year impoverishes the nation!

  2. I wonder about the built in risk in our pricing and fiscal measures owing to our form of government. let me explain: a party based governemtn will willy nilly pad up the budget with self promoting measures in order to win votes from the farmers etc. Is this fair on the system? I cannot see this happening in other governments where the sitting government is not party based. For example take another large democracy like the US where there are just 2 broad ‘parties’ – republicans and democrats. The sitting president maybe a democrat but he cannot play with the budgets to promote the reelection of the democratic party, see what i mean? your observations on increased fertiliser subsidies — would that not be a part of this election year sop? help me understand pls…

  3. Yes Meera…Coalition Era is here to stay…and coalition poiltics simply magnify and multiply the budgetary compulsions and constraints…..In pursuing a Social Objective,not entirely unjustified too for India,government policy involves bearing cost increases in Fuel, Food and Fertlisers…these are the Non Planned Expenditure Subsidies and represent what has not been passed on to the consumer…not bad by themselves in a growing economy like ours…however they need to be controlled,largely in order to control finances and ensure we don’t get more and more indebted…sadly our Interim Budget Statement of Accounts shows how further indebted we have become to fund the rising fiscal deficit…It’s quite ironic really that we now have Oil at US $ 40 a barrel and consequently a lower Inflation rate of 4 %…It rose scarily into double digits last year….and we continue even next year to have a higher absolute fiscal deficit than current FY 09…It being an Election Year this year,government has found it more difficult to take hard decisions and in fact has tried to appease “aam aadmi”…However todays TOI headlines a CAG Indictment that Rs 51000 crs has been given to NGOs for spending for the “Aam Aadmi” but there is no record of spending !…This is alarming,shocking and criminal and confirms that monies are siphoned off or diverted for other uses than for which they are stated and expenditure is overstated…. what has been suspected for such poverty alleviation and subsidy schemes year after year !

    Honesty is clearly at a Great Premium here in all Walks of Life…The “Aam Aadmi” is supposed to be Happy…He is’nt and don’tlet the government mislead or assure you otherwise

  4. Thanks Gaurav, my question stands: if the Party was not going in for elections this year, would this subsidy have been as high as this? wd poverty alleviation spends be of this magnitude? And wd the govt (read: Congress party)really spend on poverty in years where its position is not threatened? My take is that this kind of warped spending is akin to party campaign costs at tax payer’s account… as for the 51k crores… one word: disgusting! But then very happy to see the CAG getting active on this… truly India is waking up! As you mentioned, nothing new in this siphoning or semeing siphoning, but the difference is an awakened, empowered CAG!

Leave a Comment

Your email address will not be published. Required fields are marked *

On Key

Related Posts

Scroll to Top