Finance Minister Nirmala Sitharaman presented the budget for 2024-25 on Tuesday. This was the first budget of the third term of the Modi government.
In the budget, the government tells how much it will earn from where and where it will spend it? Nirmala Sitharaman has said that in 2024-25, the government will spend more than Rs 48.20 lakh crore. This is just a budget estimate. Usually, more is spent than what is estimated.
The government estimates that of the Rs 48.20 lakh crore it will spend in a year, Rs 31.29 lakh crore will come from taxes. But the government will borrow to meet the rest of the expenses. In 2024-25, the government will borrow Rs 16.13 lakh crore. A large part of the government’s expenditure goes into paying the interest on the borrowing.
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Where will the government earn from and where will it spend it?
Where will you earn from?: If the government earns 1 rupee, 27 paise will be from borrowings. After this, 19 paise will come from income tax, 18 paise from GST and 17 paise from corporation tax. Apart from this, 9 paise will be earned from non-tax revenue, 5 paise from excise duty, 4 paise from custom duty and 1 paisa from non-debt receipt.
Where will you spend it?: Out of 1 rupee spent by the government, 19 paisa will go towards paying interest. 21 paisa will be spent towards giving share of tax and duty to the states. Apart from this, 16 paisa will be spent on central and 8 paisa on centrally sponsored schemes. 8 paisa will be spent on defence, 6 paisa on subsidy and 4 paisa on pension. The remaining 18 paisa will be spent on other types of expenses. (Photo-PTI)
But where does the government get the loan from?
In such a situation, the question arises that the government is the government, why does it need to borrow? And if it is borrowing, then from where? The answer to this is that the government has dozens of ways to borrow.
One is domestic debt, which is also called internal debt. In this, the government takes loans from insurance companies, corporate companies, RBI and other banks. The second is public debt, which includes treasury bills, gold bonds and small savings schemes.
The government also takes loans from IMF, World Bank and other international banks, which is called foreign debt or external debt. Apart from this, if needed, the government can also take loan by pledging gold. For example, in 1990, the government took loan by pledging gold.
How much debt does the government have?
According to the Finance Ministry, till March 31, 2024, the central government had a debt of more than Rs 168.72 lakh crore. Out of this, Rs 163.35 lakh crore was internal debt. Whereas, a loan of Rs 5.37 lakh crore was taken from outside.
In May this year, Finance Minister Nirmala Sitharaman had said on X that by 2022, India had a debt of 81% of its GDP. Whereas, Japan had a debt of 260%, Italy had a debt of 140.5%, America had a debt of 121.3%, France had a debt of 111.8% and the UK had a debt of 101.9%.
He had said that compared to lower-middle income countries, India’s situation is much better. The Finance Minister had said that the share of short-term debt in India’s external debt is 18.7%, which is much less than China, Thailand, Turkey, Vietnam, South Africa and Bangladesh.
Cross-country comparisons show that India has performed relatively well, with its general government debt ratio being lower than in FY03.
India’s debt-to-GDP ratio was 81% in 2022. This is significantly lower than economies such as Japan (260.1%), Italy (140.5%), the United States. pic.twitter.com/74YF8ppfNb
— Nirmala Sitharaman (@nsitharaman) May 13, 2024
India currently has a debt of 81% of its GDP. This includes the debt of the central government and state governments. However, during the Corona pandemic, this debt increased to 89% in 2020-21.
But what difference does it make?
When income is low, one has to take loans to meet expenses. The government also does the same. And not only our country, but governments of the whole world take loans.
After the Corona pandemic, the government had to take more loans. In the Manmohan government, 27 to 29 paise came from loans or borrowings. In the Modi government, this was reduced to 20 paise. But during the Corona period, the debt increased. In 2021-22, 36 paise of the government’s 1 rupee income was from borrowings. However, now it is continuously decreasing.
As far as the question of what difference does taking a loan make, the answer is that it increases the fiscal deficit of the government. In the financial year 2022-23, the fiscal deficit was 6.4% of GDP. This deficit is expected to be 4.9% in 2024-25. The government has set a target of bringing down the fiscal deficit to below 4.5% of GDP by 2025-26.
What is the solution to this?
Not just India, governments across the world take loans to run the country. However, developed countries like the US and China take loans from their own Reserve Bank. Whereas, India takes more loans from international institutions and corporate companies. In such a situation, it may be a bit difficult for it to repay the loan.
D. Subbarao, former RBI Governor, had written in an article that ‘be it a company or the government, any loan should be repaid by generating revenue in the future.’
Two years ago, RBI had given the example of Sri Lanka in its report and suggested that governments need to bring stability in their debt. RBI suggests that governments should avoid spending money on non-essential places and bring stability in their debt.
RBI also suggests that governments should spend as much as possible on capital expenditure i.e. infrastructure, so that they can earn from it in the future. In 2024-25, the government is going to spend Rs 11.11 lakh crore on infrastructure.