Feb 28, 2003|
The 'other' side of budget
Historically, the key focus of the Union Budget has been to maximise the revenue side of the government's P&L account, which is more often than not, uncertain and susceptible to external factors. Since such factors are beyond government control (like say monsoons and riots), there has always been a big gap what the Finance Minister has targeted and what he managed to achieve. However, stricter norms to control the ever-expanding expenditure side have been ignored, primarily due to political pressures.
But the previous year's budget showed the first signs of atleast touching upon critical-cum-politically sensitive issues like labour reforms and introduction of the Fiscal Responsibility Bill. The Bill was aimed at listing out the ways and means to control expenditure in a planned manner over the long-term. It is a different matter that the bill has been diluted to a large extent now. But the 'intent' was seen in a small way. The current year's budget also has been on similar lines.
A brief overview of the expenditure side of the government's P&L is of significance. Of the total expenditure of Rs 2.9 trillion, 40% was accounted by interest payment towards servicing high cost debts of the past. This would have been higher but for a significant decline in interest on government borrowing during the course of the year (the average cost of government debt has come down from 11% to 9.4%). Defence and subsidy (food, petroleum and fertiliser combined) accounted for 20.5% and 14.3% of total expenditure in 2002-03. Following the dismantling of the administered price mechanism (APM), petroleum subsidy has become a part of government's expenses last year, consequently adding to its woes.
Having looked at the revised estimate of 2002-03, what is the Finance Minister expecting in the coming fiscal? Has there been a measure to address the concern of containing deficit partly by tightening the expenses side in this budget? The answer is not a surprising 'No'. Except for the marginal rise in fertiliser prices and introduction of cash management services in select ministries on a pilot basis, the Finance Minister has overall failed to slate out directives for tightening its own belt. Despite the hike in fertiliser prices in this budget, total subsidy in FY04 is expected to increase by Rs 17 bn. The government has attributed this rise to the payment of arrears under the previous pricing era.
Despite the ongoing debate of whether the government needs to spend 20.5% of total outgo towards defence, the total defence bill in FY04 is expected to further rise by Rs 93 bn. The enhanced provision is towards additional expenses towards pay(!) and modernisation. The Finance Minister's woes have been further excaberated by the rise in crude prices in the international markets. Since a commensurate price increase could not be effected for LPG, petrol and kerosene in light of the forthcoming elections, the deficit is expected to widen. This is reflected in the graph below.
The initial feedback from investors' on the budget 2003-04 has been a positive one. While the Finance Minister has to be commended on his infrastructure related moves, he has been found wanting in efforts to control fiscal deficit. The deficit is expected to touch a concerning level of 5.6% of GDP in FY04. In this context, it has to be remembered that maximising revenues is just one aspect in the process of budgeting. As is for corporates, the government first needs to address factors that are under internal control before projecting ambitious revenue estimates. Especially when there is significant global economic uncertainty on the external front, in light of the US-Iraq imbroglio. Till then, the 'other' side will continue to daunt investors.
More Views on News
Jul 25, 2017
Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?
May 27, 2017
What happens when minority shareholders are short-changed in the normal course of business?
Feb 15, 2017
PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.
Aug 24, 2016
And here's your chance to claim a free copy of this book...
Aug 12, 2016
And Why India's demographic dividend could turn out to be a doubtful debt...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407