Business Today – August 25, 2019

42 IBUSINESS TODAYIAugust 25I 2019

Budget speech on July 5 where she announced an intention of going for

foreign currency borrowings in order to finance the government deficit

that has ballooned over the years, mainly because of huge spending on

infrastructure and welfare schemes. The purported aim of the step was to

ensure that a bigger chunk of domestic liquidity is available for the private

sector, facing a serious funds crunch. Media reports even suggested that

the first tranche of these bonds would be issued as early as October.

But the script changed. On July 24, the Appointments Committee

of Cabinet transferred Finance Secretary Subhash Chandra Garg – who

was given the job of drafting the maiden Budget of the Modi 2.0 govern-

ment with a brief to lay down the path that can make India a $5 trillion

economy in the next five years – to the power ministry. One reported rea-

son for this was the Budget proposal go for foreign currency borrowings

to ease liquidity and interest rates in the domestic market in order to get

economic growth going. The other was the fact that the Union Budget’s

revenue figures did not match with those in the Economic Survey pre-

sented to Parliament a day before. There was a `1.7 lakh crore hole in

the Budget papers. The next day, Garg exited North Block and sought

voluntary retirement.

If we connect the dots, one thing comes out clearly – government

revenues are not rising at the pace it wants us to believe, a fact that was

behind the foreign borrowing proposal. As Rathin Roy, a member of the

PM Economic Advisory Council, put it: “India is going through a silent

fiscal crisis.” The proposal to borrow abroad brought into focus the fact

that the government has limited options to raise money. It can either

spend less or borrow more. Considering that the country’s growth over

the last few years has been fueled majorly by public spending, the only

option is to borrow more, and this is exactly what the government has

been doing (see No Let-up). A recent presentation by the Comptroller

and Auditor General to the 15th Finance Commission said the govern-

ment had been understating the fiscal deficit by skipping off-Budget

borrowings and expenditures. The sovereign, it said, would need roughly

Government borrowings

have been rising steadily...

So

urc

e:^

Wo

rld

Ba

nk

...Domestic

private sector

borrowings

as per cent of

GDP have been

falling as a

result

NO LET-UP

Deficit (in Budget)

Off-Budget Borrowings

Total Borrowings 11,66,105

Figures in ` lakh crore;

Source: Budget Papers

2016/17 2017/18 2018/19

6,45,367

5,20,738

8 ,^23

,^00

0

5 ,^35 ,^000

2 ,^88

,^000

20

15

20

16

20

17

20

18

51

.^8
7

49

.^19

48

.^78
49
.^9
3

OTHER OPTIONS

TO INCREASE

LIQUIDITY

Increase in ceiling

on FPI investments in

government bonds

Transfer of surplus

from the Reserve

Bank of India and

use of these funds to

capitalise banks

A more efficient plan

to divest public sector

companies

Speedier expenditure

reforms, lowering of

revenue forgone

“Foreign funds are an option

when the economy is growing

at a healthy rate and investors

are more than keen to pump

in money. I doubt this is the

scenario right now”

MONTEK SINGH AHLUWALIA

Former Dy Chairman, Planning Commission

`11,40,367 crore, not the `6,45,347 crore es-

timated in the Budget in 2019/20, to meet

its commitments. This is good enough to

choke the domestic debt market. Garg pro-

posed external borrowings to ease this pres-

sure, though he did not account for opposi-

tion to the move from people from as diverse

backgrounds as Roy, former RBI Governor

Raghuram Rajan and even RSS think tanks