Swaminomics: Sitharaman’s budget managed Trimurti but the threat of economy did not go away

Yet some critics would say that serious problems are being sidelined and the country is headed for a financial crisis. Economist Prachi Mishra is on the first row in the group of such people. They say that the burden of loans taken earlier has increased a lot. The money that is going to pay their interest should be used for infrastructure, social sectors and other public goods. Similarly, economist Jean Dreze says that from 2024-15, the budget for mid-day meals has decreased by 43 percent and the expenditure on integrated child development by 40 percent. This is the opposite of populism. That’s too many cuts.

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increasing burden of interest payment

Budgetary resources are decreasing every year due to the increase of interest payments. Mishra says that if the center and states are combined, the ratio of interest payments to revenue in India is three times the average of emerging markets. It needs to be cut by at least a third. However, there is no immediate danger from this. To maintain the fiscal deficit, real GDP growth should exceed the real interest rate. This is the situation today. Despite the long term risk, India can follow this path for many years.

Sitharaman’s budget shows no change in adverse trends. The ratio of the Centre’s interest payments to total revenue was 37 per cent in 2021-22, 40 per cent in 2022-23 and is estimated to be 46.3 per cent next year. Similarly, the ratio of interest payments to tax revenue stood at 44.6 per cent in 2021-22 and 45.1 per cent in 2022-23. It is estimated to be 46.3 percent next year. Soon a situation will come that half of the total tax revenue will go towards interest payments.

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No use of tax reforms

This one solution can be done by increasing the tax collection. The ratio of the country’s total tax revenue (of the Center and states) to GDP has not increased for many years. According to the Economic Survey, this is 5.5 percent less than the emerging economies. Tax revenue is low due to tax evasion, corruption and inefficiency. To deal with this, several tax reforms were done in the last decade. The biggest tax reform in this was GST. Many types of taxes were mixed in it. Many reforms were also done in direct tax. It has been simplified and digitization has been promoted. Campaigns have been launched against black money to catch tax evaders. Along with this, the number of raids by the Income Tax Department has also increased manifold.

But despite all these efforts, there is no significant impact on the actual tax revenue. A chart has been given in the budget documents in which figures of central tax receipts have been given against GDP. This ratio was 10.1 per cent in 2013-14, which increased to 11.2 per cent in 2017-18. Before Corona, it fell to 9.8 percent in 2019-20. It again increased to 11.1 per cent in 2022-23 and is expected to remain at the same level next year as well. Overall, the tax reforms carried out in the last decade have had disappointing results. There is a need to do something new but at present the government does not have any such idea.

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BJP can celebrate

However, the experiences of many countries of the world have shown that the economy can be run with high deficit and debt. According to the Maastricht Agreement, the fiscal deficit of any Eurozone member country cannot exceed three per cent of its GDP. In many countries of Europe it is more than this limit. Economists Reinhardt and Rogoff warned that if the debt/GDP ratio exceeds 90 percent, it could lead to a decline in economic growth. In many western countries this ratio has reached double and it has not created any crisis.

In India too, we have left behind the law aiming to keep the fiscal deficit at three per cent of GDP. Instead, our target now is to bring down the debt/GDP ratio to 60 per cent. In this, the share of the Center will be 40 percent and the share of the states will be 20 percent. Due to Corona, this ratio had gone up to 90 percent and now it is around 85 percent. We’re not even anywhere near near long turn nirvana. But in the words of Keynes we are dead in the long run. For now, the BJP can celebrate this budget as it has been hailed by economists and has enough spice for the upcoming assembly elections.