A recent statement issued by the International Monetary Fund (IMF) highlighted that the debt burden on India’s central government as a proportion of gross domestic product (GDP) has increased from 74% in 2019 to 90% in 2021. At the same time, India is now appearing as one of the top borrowers among emerging economies. Although, the government has rebuffed IMFs statement citing the reason that borrowings have been made to overcome the impact of the pandemic and to allocate the stimulus packages for the welfare of the people, yet how much has actually been spent on the welfare of the masses is not unknown. In fact, the government is squandering the borrowed money on aristocratic projects like the Central Vista project, building up statues and stadiums, gathering crowds at election rallies, security of politicians and corporates besides buying airplanes for the Prime Minister and the President
When a comparison is drawn between the borrowings made by the governments run by UPA II and NDA I in last one decade or so, it becomes evident that during Dr. Manmohan Singh's tenure as Prime Minister, central government's debt was about 40% of total expenditure (2011-12), whereas in Modi government’s reign it receded to 26% (2018-19). Raison d'être for this reduction in borrowings is the decline in capital expenditure, which further led to a decrease in investment, creation of jobs and income. There is no denying the fact that public schools, colleges, universities, hospitals, dispensaries and other infrastructural projects have not seen any appreciable increase during Modi’s rule. Appallingly, when demonetization and GST were squeezing the blood of peasants, traders, workers, self-employed and the common public in 2016-17, Modi government was busy reducing public expenditure to get rid of its debts. Hence, in the absence of public investment, unemployment peaked at its 45-years high in 2019 and we were slowing down badly even before the covid-19 pandemic. Infact, covid exposed and brought our fragile economic structure on to the surface. An unexpected and ill-timed lockdown halted the economy and resultantly decreased central government’s revenues that forced the government to borrow more.
FINANCIAL SECTOR DISTRESS
Though borrowings are inevitable, yet experts smell a rat in these borrowings. Central government had to borrow `12.8 lakh crore during the last financial year (due to low revenue collection) and government's target for the current financial year is to borrow `12.05 lakh crore amid second wave of the pandemic. One of the sources of borrowings is the sale of government bonds through RBI, which are primarily subscribed by the commercial banks and insurance companies in order to lend money to the government. However, in last few months even the central bank had been failing to convince the commercial banks to purchase the government bonds. Main cause for the reluctance of banks and insurance companies to purchase these government bonds was the issuance of these bonds at low interest rates. Banks and insurance companies demanded an increase in the interest rates. Since our government is hard bent to provide cheap interest rates to the corporates, hence, an increase in rate of interest on government bonds could have triggered a wave of increase in interest rates everywhere. On the other hand, banks knew that keeping interest rates low at this juncture may frustrate the depositors who will then be forced to withdraw their sum from banks and deposit it in small savings schemes that offer a handsome rate of interest. To keep its own accounts tidy, the central government undertook a step to reduce the interest rates on small savings schemes like Public Provident Fund, Kisan Vikas Patra, Post Office Savings Schemes and National Savings Certificates. Trimming down the rate of interest in small saving schemes directly connote less remunerative propositions for the depositors to withdraw their savings from banks and availability of cheaper loans for the government as well as corporates.
However, just hours after the order carrying instructions related to the decrease in rate of interest in small saving schemes was issued, the government withdrew it citing that the order was mistakenly released. Experts lament that this order has been temporarily withdrawn under compelling circumstances and will make a comeback shortly. Infact, owing to the ongoing elections in five states and understanding that the contribution of about 25% to the small savings schemes comes from these states, central government withdrew the order in no time. Further, West Bengal, where BJP is fighting a fierce battle in elections, contributes nearly 15% to small savings schemes. Hence, woes of the general public which have been momentarily addressed will be again rubbed with salt with the release of a similar order in future.
WARNING BELLS RINGING FOR THE GENERAL PUBLIC
There is a difference between the economic scenarios that prevailed during the striking of the first and second waves of corona in India. When the first wave hit us we were amidst a slowdown and due to lack of demand, prices were going down. Contrary, the second wave has caught us during rising inflation wherein both wholesale and retail prices are increasing. The second wave is proving disastrous not only on economic grounds, but also on physical grounds. Increasing number of deaths has inundated our thought process and we are not discussing the impact of second wave in economic sense. During the first wave, the government somehow managed to fill its coffers by hiking the prices of petrol, diesel and cooking gas prices and simultaneously appeasing the general public by providing the cheap loans or central government backed loans besides moratorium on payments. However, keeping into consideration the distress in financial sector, government may not be able to repeat such soothing moves.
Listening to the recent speeches of Prime Minister Narendra Modi, it seems as if the union government after leaving everything in the hands of state governments (to control the pandemic) is now watching the predicament as a mute spectator. Without any increase in the production or storage capacity of domestic vaccine companies, union Government has handed over the responsibility of inoculating vaccination to the people by the states. Similarly, without caring for the warnings sounded by the Sero survey, Parliamentary panel and Intelligence units, the central government damn cared for increasing the supply of oxygen in the country. Of the 150 invited tenders for installing oxygen plants just 33 could be set up around the country and that too after repeated forewarnings. In addition to this callous approach, no efforts were made to arrange for the cryogenic containers to transport the oxygen from production centres like Odisha, to other parts of the country. There are just 1162 cryogenic containers available in the country to transport the oxygen which proving insufficient amid this crisis hour. Negligence on the part of the government has taken away many precious lives which through a proactive management could have been saved. Instead of being apologetic, blame game between the centre and state governments is further spoiling the scenario.
Reeling under heavy debts and in the absence of customary revenue proceeds from the central government, state governments have a limited capacity to serve the people. It is anticipated that state governments may shortly throw a proposal to the central government wherein procurement of essential medicines will be made the central government and their administering to the public will be handled by the state governments. The conditions at states level is so pathetic that now judiciary is intervening and reminding state governments to take pro-public actions. Overall the management from the governmental side has gone for a toss, the cost of which is now being paid by the innocent public by sacrificing their lives. The question that needs to be answered here is what is the fault of the general public from whom both the central and state governments have collected billions of Rupees as taxes and then left them to the destiny during testing times.
Given the out-of-control situation, it is not difficult to comprehend that in near future too, on the economic front, people will be meeting an ordeal ranging from low availability of goods to high prices and from job losses to low rates of interest on their deposits.