Mecklai Graph: The next move to support economy

The below three components viz. Interest Payments, Defence and Subsidies share the lions share of the total Non-Plan Expenditure of the government accounting for more than 74% of the total in the fiscal year 2011-12. The total Non-Plan Expenditure for fiscal year 2011-12 is Rs. 892115.56 Crore while the fiscal deficit was recorded at Rs 5,20,000 crore - equivalent to 5.9% of GDP. The below graph tells us that the interest burden has increased by almost 44% in the past 4 years, whereas subsidy payments by the government have increased by 66% since 2008.

The borrowing programme of the government continues to overcrowd private sector resulting in higher interest burden. Similarly, sale of fertilizers, oil and food grains at subsidized rates has augmented the fiscal imbalance. In the Union Budget of 2012-13, the figures for Subsides have been budgeted downwards by 37% at Rs. 43580 crore against the Rs. 68481 crore in 2011-12. Thought the India’s Crude basket price have fallen recently on account of fall in global crude prices, the budgeted figures warrants for immediate steps in the form of deregulating diesel, kerosene and cooking gas while strictly monitor the borrowing programme.

The Government needs to take concrete steps to reduce expenditures to check slippage in government finances and the most feasible way to reduce the fiscal deficit would be to reduce subsidies and borrowing. At a time when the foreign flows are drying up, government should try to increase the flow of funds from the rather unproductive area to productive areas in order to revive the economy and thereby support Rupee.

The below graph shows the Non-Plan Expenditure of the government since 2008-09

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