Get More Info
  • STOCKSELECT
  • SECTOR REPORT
  • RELATED VIEWS
  • SPECIAL REPORT
  • INTERVIEW
  • MYSTOCKS

  • Views Search

    Portfolio Tracker
  • VIEW PORTFOLIO
  • Equitymaster.com : Government finances: Check...check...!!!
     
  • PRINT THIS
  • E-MAIL THIS
  • FEEDBACK
  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  SEPTEMBER 9, 2003

    Government finances: Check...check...!!!
    MYSTOCKS | FREE NEWSLETTER

    India has been on a growth path since the opening of the economy in the early 1990’s. And it continues to grow impressively. A GDP growth rate of about 6% is good enough a reason to look at the Indian markets as an investment destination vis-a-vis some of the other developing countries. Just to put things in perspective, in the decade to FY00, India has grown at an average GDP rate of 6% compared to Thailand, Korea or Indonesia, which have had a relatively lower average growth rate. The leader, undoubtedly, has been China, with average GDP growth rate of over 10% in the period from 1990-2000.

    Note: Centre and States combined
    Source: RBI Annual Report 2002-03

    However, one big concern for India continues to remain…that is its huge fiscal deficit. The above chart indicates the combined Gross Fiscal Deficit (GFD) of the Centre and the State governments, which in FY03 was at a staggering 10.1%! According the Reserve Bank Of India (RBI) Annual Report 2002-03, this was a full percentage point higher than what was targeted owing to a shortfall in tax revenues and divestment receipts (budgeted).

    On the total expenditure front, the scenario improved marginally, as the government was able to control it around the budgeted levels. However, the quality of expenditure raises some concerns. As can be seen in the chart above, the developmental expenditure has come down from over 17% of GDP in early 1990’s to the current levels of below 15% of GDP. In the same period, the non-developmental expenditure has risen from around 11% in 1990-01 to 15% of GDP (budget estimates for 2003-04). This is not a good indication as it indicates that the finances that should be used for improving the productive capacity of the economy are rather being spent on managing the administrative expenses of the government.

    Note: Centre and States combined
    Source: RBI Annual Report 2002-03

    Also, it seems that the government has not been able to effectively utilize the benefits of the soft interest regime prevailing in the economy. As can be seen in the above chart, the total interest payments of the Central and State governments combined constitute over 6% of the GDP and this has steadily increased from about 4% levels in 1990-01. The interest payment is directly related to the total debt of the government, which it needs to service. The total debt has increased from 62% of GDP in 1990-91 to 77% of GDP as in 2003-04 (budget estimates). Moreover, out of the total revenue receipts in 1990-91, 24% of it went towards servicing of debt. The figure currently stands at 34%!

    So, are things going to improve from hereon for the Indian government? If we look at certain indications, it seems so that things should improve going forward. To begin with, on the revenues front, as the divestment process gathers pace and the government is able to realise its budgeted divestment receipts, it will help to keep itself in line with its targets. Moreover, on the debt front, the government has started taking initiatives to pare and restructure the same at lower interest rates. It must be noted that last fiscal, government prepaid high-cost loans slightly less than $3 billion taken from World Bank and Asian Development Bank. Now, backed by the cushion of huge forex reserves to the tune of US$ 86 bn, there are reports that the government is planning to pre-pay more foreign loans, which will help it to keep a check on its interest outgo (nearly Rs 1.2 trillion) and the country’s fiscal deficit. Moreover, the benefits of swapping of high-cost debts with state governments and buy-back of high interest bearing securities will further help the government to control its interest expenses. So, all in all, as of now, the government seems to be moving in the right direction!

  • Get the budget special issue of Money Simplified, our free quarterly publication. Click here!

    Its about selecting the right stock...
    ...at the right price!

    Equitymaster follows the value-investing approach to selecting stocks for investment. Subscribe to our premium research today!

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
  •  

    © Equitymaster Agora Research Private Limited
    www.personalfn.com | www.equitymaster.com
    Why Personalfn? | Why Equitymaster? | Terms of Use | Contact Us | About Us