These are numbers being bandied about by the Modi government. Are they real? Where will the money come from?
Nitin Gadkari, the union minister for Rural Development and Drinking Water and Sanitation on Wednesday announced a grant of Rs20 lakh for each village in the country every year until 2 October 2019. Considering there are about 2.65 lakh gram panchayats in the country (2002 estimate), this translates into an additional expenditure of over Rs53,000 crore every year or about Rs2.65 lakh crore for next five years on the exchequer. This is in addition to Rs1.34 lakh crore, Gadkari's Ministry is spending for building toilets across the country. Both put together is about Rs4 lakh crore. The question is can India or better, can taxpayers afford this additional burden and where will the money come from?
India's weak public finances are manifested in a long history of general government fiscal deficits, averaging 8.8% of GDP over the past 20 years. There is an accumulated net general government debt stock of close to 70% of GDP. Prior governments have not been able to broaden India's revenue base (with general government revenue at about 21% of GDP, of which only half are taxes) or trim expenditure. India's budget is saddled with extensive subsidies for food, energy, and fertiliser.
According to a report from Reuters, India's fiscal deficit during the April-August 2014 was about Rs3.98 lakh crore or about 75% of the country's full year target. Net tax receipts were at Rs1.85 lakh crore during the first five months of the current fiscal that ends in March 2015, the report says.
Almost every minister in the Narendra Modi cabinet is seen making big announcement for spending public money without even thinking on resource mobilisation. Nobody is talking about increasing government resources or revenues but ministers are more eager to spend taxpayers’ money under public facilities.
Gadkari, often labelled in Maharashtra politics as 'flyover man' for initiating flyovers in the state, had already said that his ministry would spend over Rs1.34 crore for constructing over 11.11 crore toilets in the country over next five years. Piyush Goyal, another minister in the Modi government also announced that public sector units (PSUs) under his control would build about one lakh toilets in schools.
Last week, while revising India's outlook to 'stable' from 'negative' ratings agency Standards and Poor's (S&P) had said the country's fiscal and debt metrics are set to remain key rating constraints for some time. "We project net general government debt to decline to below 60% of GDP by the year ending March 2018, and with it, general government interest rate expense to just under 20% of revenues. A faster pace of deficit and debt reduction is unlikely in our view," the ratings agency said while affirming a 'BBB minus' rating on India.
Will S&P be forced to recalculate its numbers, given how Modi government is splurging money when no system of accountability has been put in place?