So what do finance minister Arun Jaitley and Bollywood have in common? They both love the number “Rs 100 crore”. Bollywood cannot stop talking about films that have done a business of Rs100 crore or more. And Mr Jaitley, in his maiden Budget speech, uttered “Rs100 crore” 29 times, while making allocations to various government schemes.
This has led a lot of experts to comment that Mr Jaitley has spread himself too thin. Whether that turns out to be the case, only time will tell. Nevertheless, in the Budget speech, Mr Jaitley did not talk about the single biggest expenditure of the government — debt servicing, i.e. the interest that it pays on its debt and the money that it spends in repaying it.
Governments all over the world spend much more than they earn.
This difference is referred to as the fiscal deficit and is financed through borrowing. The money is borrowed for a certain period. During the period a certain amount of interest needs to be paid on it. And at the end the borrowed money needs to be repaid.
Over the years, the government has been spending more than it has been earning. Given this, the fiscal deficit has shot up. In 2007-2008, the fiscal deficit of the Indian government stood at Rs1,26,912 crore, or 2.6 per cent of the GDP.
The fiscal deficit projected for 2014-2015 stands at Rs 5,31,177 crore, or 4.1 per cent of the GDP. More borrowing has meant that the cost of debt servicing for the government has gone up over the years. In 2009-2010, the total debt servicing cost stood at Rs 2,94,857 crore.
The fiscal deficit during that year stood at Rs 4,18,842 crore. Hence, the ratio of the debt servicing cost to the fiscal deficit worked out to 0.7.
Vivek Kaul is the author of Easy Money: Evolution of the Global Financial System to the Great Bubble Burst.
He can be reached at vivek.kaul@gmail.com
