Cooking the Nation's books - Part II

Carrying on from where I so abruptly sliced the ‘Cooking the Nations Books’ post into two… I ended up downloading the whole sheaf of financial statements from the Finance Ministry site and started my elevator ride down the black hole of numbers in tens and hundreds of millions.

We shall, for the purpose of this post, not worry about whether the figures are in Crores (10 Million) or Lacs (Hundred Thousand) but the pure arithmetic gymnastics of the mandarins of the Finance Ministry. Almost all receipts and disbursements are maintained in a book termed as the ‘Consolidated Fund of India’, which also details the receipts and disbursements under the ‘Capital Account’. A second book of accounts titled ‘Public Account of India’ deals with funds against which the government either earns interest or disburses monies. This book is not what we are concerned with.

The first thing that struck me was the callousness with which the books have been prepared. The guys tasked with making the Financial Statements did not even check to make sure that all additions are in place and I found multiple instances of totalling mistakes. I feverishly hope that the guys noted the figures correctly and that a 69 didn’t get transformed to 96.

Here’s how the figures stack up….

Earnings/Receipts:

Taxes (all taxes under the sun) fetches the government Rs. 687,679.00 crores. Of the monies earned Rs. 178,765.00 crores is shared between the various states leaving the federal government with Rs. 508,914.00 crores (A) to play with. Non Tax Revenues fetches the government Rs. 224,519.55 crores (B) and a further Rs. 55,183.89 crores (C) is shown as receipts under Revenue deficits (by what logic I fail to fathom). Add to this Rs. 1,901,142.94 (D) which is shown under receipts from the Capital Account. Here is the interesting part - Rs. 1,884,985.43 crores is money raised as public debt, which in turn constitutes 99.15% of all receipts under the Capital Account.

Going forward if we add up A+B+C+D, the governments earnings stands at Rs. 2,689,760.38 of which the government raises 70.08% as debt and do you recall any of the economists or corporate honchos ever raising the red flag and taking the government to task!

The disbursements/spendings of the government provides a much bleaker picture. Read on….

Disbursements/Spending:

Disbursements shown under the Revenue Account stands at Rs. 785,583.70 crores (A), all Capital Expenditure heads add up to Rs. 1,839,833.97 crores (B) and a host of other expenses are charged simply by saying ‘Disbursements Charged on the consolidated Funds of India’ which adds up to a staggering Rs. 1,994,729.44 crores (C). Add A + B + C and the government ends up spending Rs. 4,620,147.11 crores, spending almost double of what it earns. The shocking part here is not that we end up spending more than we earn, but 72.31% of all earnings are spent towards debt servicing. No wonder we have precious little left for education, infrastructure development etc etc and to top it all none of the myriad hued analysts, who go though the budget using a fine tooth comb, have though it fit to share the information with the public.

Not only does the shortfall between earnings and expenses stands at a shocking Rs. 1,930,386.73 crores, but our honoured Finance Minister has not included the Rs. 60,000 crores of the farmer largess nor has he added the financial implications of the sixth pay commission in the budget. As per the latest news that’s emerging, the government will end up forking out Rs. 30,000 crores to meet the revised increased salaries, shooting up the already high deficit to Rs. 2,020,386.73 crores.

This kind of financial jugglery has been done by almost all governments since the late 70’s sinking the federal government’s finances further and further into debt which, as we stand today, is an extremely vicious circle and an extremely tight spot to get out of until some drastic measures are taken to enforce fiscal discipline in the system.

Cooking the Nation's books - Part I

This post unlike my other posts was never meant to be. As with every other ordinary citizen the annual Budgeting exercise by the federal government held little significance for me, except for an understanding of what one has to fork out by way of taxes, prices for various commodities etcetera etcetera. This post is also, by the way, the culmination of two significant insights.

a. Never pre-judge
b. You don’t know what your elected governments (past, present and future) are upto!

It all started with one of the group companies, of the organisation which I work for, organising a talk on the latest budget by a certain gentleman from Delhi who wasn’t someone I had ever heard of. The budget had been, by then, declared, analysed, poked, rifled and sifted by the doyens of the industries and honchos from the various - some known, some unknown - trade bodies and chambers. Almost everyone in my organisation tasked to make the talk show a success thought, ‘Hey! We know the budget… it has been discussed threadbare…no surprises there, so what on earth is this guy going to talk about?’ The guys from the media, whom we had invited for the event, had turned up their noses and didn’t want to cover ‘stale’ news. I must admit that none of us knew what the guy was going to speak about but had all mentally decided that there couldn’t be anything new that we could learn – don’t we all watch TV and read the papers. Big mistake – the guy spoke what no one had spoken before. With a memory of an elephant he reeled off figures and statistics that showed how an elected government can hoodwink its own people and made bare to the audience the government’s utter failure at fiscal discipline even with an economist as the PM at the top of the political-bureaucratic pile. Thus the first insight – don’t ever pre-judge! The second insight, following furiously at the heels of the first, was more sombre and shocking. I had heard of fiscal deficit and how the government ends up spending more than it earns but the magnitude of the problem and how callously almost all governments, from the late 70’s onwards, have mishandled India’s finances is amazing. Thus I ended up downloading the latest budget statements from the government site and started my own poking and sifting, trying to make sense of all that governmental legalese.

This post, I fear, is going to get stretched, calling for a lot of scrolling, and those of you my dear readers who trudged along till this line, please bear with me. I have spilled this post into another to make for easier reading. The second part deals with the figures that appear in the latest budget and will hopefully reveal to you how the government pulls wool over our eyes.