Debt burden is rising; industry must share it

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Debt burden is rising; industry must share it

Monday, 09 January 2023 | Shivaji Sarkar

Debt burden is rising; industry must share it

The industry, with the motive of cashing in on its profits the maximum, wants the Government to bear the expenses that it should ideally have done itself

The year 2023 ushers in the most eventful year with one-third of the country seeking to form new governments in states. The Union Budget to be unveiled on February 1 would be virtually the last full annual budget of the Narendra Modi-led National Democratic Alliance government in its second term, which may get many colourful touches ahead of the 2024 Lok Sabha polls.

In February 2024, it would be only a partial Budget in line with the convention since the general elections would be held in March-April next year. A massive public spending programme was announced last year with a spending of Rs 5.5 lakh crore and by the close of the year it has taken additional sanctions to spend Rs 7.5 lakh crore – an increase of 35.4 per cent.

Over Rs 2 lakh crore goes into the free-food dole that has emerged as a new bartering system for cash, keeping a large number of the under-privileged smiling as it changes their lives. The inflation index is stabilising but the prices are zooming. It is politically and economically tightrope walking through international uncertainties fueled by the Russia-Ukraine War, globally, particularly European, energy crisis and projected slowdown.

Budget making is not easy as the nation moves on to the election mode with the Tripura polls in February, while the people across the country are facing a

difficult job scenario, and not so comfortable consumer demand is hitting manufacturing and core sector growth. The industry bodies like the Confederation of Indian Industries (CII) are demanding raising the income-tax threshold to Rs 5 lakh, cut in the GST for most items to less than 28 per cent and thrust on rural infrastructure for facilitating employment generation and sales with an opposition sharpening its teeth.

Finance Minister Nirmala Sitharaman is likely to agree to some of these demands. Industry is not worried about the government finances. Each of the above suggestions has bearing on revenue collections. The deficit is about 6+ per cent, says the government, but the International Monetary Fund (IMF) finds it at 10 per cent.

Market borrowings are projected at Rs 11.6 lakh crore, about one-third of the budgetary expenses, which are likely to shoot up as till September itself as it reached Rs 8.45 lakh crore. The burgeoning public debt rises to 89.1 per cent. The IMF is concerned that 84.16 per cent of Indian GDP comprises borrowings.

Life for a Finance Minister is not a bed of roses as current account deficit and external borrowings are increasing with an unstable dollar. These acute problems are apparently not the priority of the industry.

That the industry has not moved out of the 1950s mindset is evident with their suggestions to cut employer contribution to the National Pension Scheme to 10 per cent from 14 per cent, a move that hits the workers hard. And from an unhappy worker they want

higher productivity and a better market!

The CII, Ficci, the PHDCCI, and ASSOCHAM should have given more constructive suggestions to the Finance Minister. Wonder why they did not draw the attention of the government to the expensive, highly polluting fruitless exercise of scrapping cars. Similarly, they should have told the FM that after Rs 2.6 lakh crore petrol-road-building cess a year, abolition of highway toll is beneficial for bringing down prices drastically, making budgeting process easier and help the Reserve Bank of India keep interest rates low.

Infra spending adds to glittering activities of project expenses. It is often forgotten that infrastructure is also a drain and most developed countries have done it not with gusto in a short period but over long spans of time. That is prudent. Despite that today the US needs $58 billion for repairing 220,000 bridges and immediate reconstruction of 79,500 bridges.

The Indian industry with its profit motive wants the government to bear the expenses that it should have done itself. Infrastructure needs investment and also provisioning at a high level for refurbishing and replacement. Industry bodies, professing infrastructure investment, want that the concessions should bolster companies through government efforts, which may not be sustainable for long.

Inappropriate priorities can land the country, fewest in the world that still is on a growth trajectory, to an undesirable tract. The world is looking at how the existing infrastructure could be maintained for a longer time. Somehow, many economists want a review of the spree of demolitions of office buildings in Delhi and elsewhere. The western world capitals pride in refurbishing these heritage structures to continue with it for centuries.

High-speed trains should not be a fad. Better management with less investment can speed up many trains. Abandoning of stations and creating new ones can be avoided. It would give more leeway to the FM. The country needs to rethink building massive rail stations with fences and security. The richest countries try to keep the rail stations simple, with adequate facilities but keep their expenses low.

Industry even did not suggest replacing loss-making Metros in smaller towns like Jaipur or Lucknow with simple but efficient trams. They would not as many of them are beneficiaries of ill-placed priorities.

The burgeoning public debt rises to 89.1 per cent of GDP. This cannot be the normal prescription. Industry has to share the infrastructure and other expenses and can’t allow the country to slide on heavy repayments. Total debt is estimated at Rs 152 lakh crore in March 2023, while accounting for Rs 17 lakh crore rise in a year.

About 20 per cent or one-fifth of the budgetary allocation, Rs 7.88 lakh crore of a budget of Rs 39.44 lakh crore, go in the repayment of interest payments.

Industry should have suggested to the government how to keep the debt low. Instead, it wants the government to borrow more to bolster their profits. It has to take a call to resist pressure on increasing capital expenditure. Let the private sector mull how it should help in keeping the fiscal deficit low to match a low revenue growth.

The government is not in a position to raise tax rates. For fiscal prudence, it has to give up a bit. It is a tough year and such innovation away from extravaganza would help the nation. The industry cannot expect the government to burden the people particularly in a year when world growth as per IMF, UNCTAD and World Bank would be slower.  The IT majors are under pressure from global economic troubles and would be squeezing more.

The IMF sees India growing at 6.1 per cent in 2023-24, a little less than 6.8 per cent estimates of RBI. It’s indeed challenging for the government to give more jobs, manage finances, and be the world engine of growth. The RBI finds India capable but prudence, sagacity and tough steps needed to sail through in a stormier world in 2023-24.

(The author is a senior journalist)

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