DOES THE INDIAN GOVT HAVE MONEY TO MEET ITS OWN EXPENSE?
Do we know how the Government of India spends the taxes collected? Does the government of India indeed have enough funds and resources to fulfil the public demands or rather their even their domestic ones? Does the picture painted by the government which is portrayed to us a real one? How does the federal government spend its money?
Government spending or outlay comprises of all government consumption, investment, and transfer payments. In national income accounting, the procurement by governments of goods and services for current use, to directly content the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services envisioned to create future benefits, such as infrastructure investment or research spending, is classed as government investment (government gross capital formation). These two kinds of government spending, on final consumption and gross capital formation, together compose one of the major components of gross domestic product.[1]
The welfare of the people of India exceedingly depends on the expenditure of the Government of India (GOI). Government expenditure is a very significant aspect of the government’s budget presented by the finance minister every fiscal. Through it, GOI tries to maximize the welfare of the people by appropriately allocating economic resources to various government activities.[2]
Majority of the amount that the government accumulates as taxes from the people is spent on interest payment, defence, food subsidy and pension.[3] Corporation tax and income tax together constitute one third of the total government earnings.
About 63 percent of federal spending in 2017 was for programs not subject to regular budget review, while nearly 30 percent covered discretionary programs for which Congress must regularly appropriate funds. Seven percent went for interest on government debt.
MANDATORY SPENDING
Mandatory spending protects the outlays controlled by laws other than appropriations acts. Almost all such spending is for “entitlements,” for which expenditures depend on individual eligibility and participation; they are funded at whatever level required to cover the resulting costs. Mandatory spending has grown from about 31 percent of the budget in 1962 to nearly 66 percent in 2017. This is mostly because of the new entitlements, including Medicare and Medicaid (both of which started in 1965), the earned income tax credit (1975), and the child tax credit (1997). In addition, the rapid growth of both the elderly and the disabled populations has contributed to increased Social Security and Medicare spending.
DISCRETIONARY SPENDING
Discretionary spending covers programs that require appropriations by Congress. Unlike mandatory spending, both the programs and the authorized levels of spending require regular renewal by Congress. The share of the budget going for discretionary spending has fallen from two-thirds in 1962 to about one-third now.
About half of FY 2017 discretionary spending went for national defence, and most of the rest for domestic programs, including transportation, education and training, veterans’ benefits, income security, and health care. About 4 percent of discretionary spending funded international activities, such as foreign aid.[4]
It is a well-established fact that government budget scores high on promises and low on numbers.
Several of the steps taken by the government to give the impression that it has stabilized the economy, in fact, show its desperation to conceal its weaknesses. Its implementation of GST is flawed and has led to an increase in cash transactions and a fall in government income. The government has anticipated that the LIC take over the IDBI bank, (having huge bad loans) to help keep the fiscal deficit down. The ONGC has bought the government’s entire stake in oil refiner HPCL, to help meet disinvestment targets. A massive flow of money into the stock market by domestic mutual funds at the pressure of the administration to give an optimistic view of the economy has created a bubble that could crash at any time. How far these factors have led to the abrupt resignation of chief economic adviser Arvind Subramaniam will only be known later. The government’s actions are around creating a feel-good tactic rather than a serious economic effort. It normally wins the approval of international aid agencies because it is pursuing its strategy of more privatization of public resources. The GST was controversial because of the high and multiple rates imposed on the businesses and the consumers, but the hope was that it would make tax collection easier and evasion more difficult.
The government is evidently evading its responsibility in an effort to cut down its fiscal deficit by the creation of a profitable enterprise like LIC takes on a loss-making one. The price will, of course, be paid by the policyholders who will get lower returns, and will have to pay the for the government’s incompetence.
The government is structuring up a false sense of hope to show the economy is doing well. If one follows a sense of reality rather than believe in fables such as this government propagates, it is not problematic to see the mess we are in.[5]
[1] Government spending, Wikipedia, the free encyclopedia (May 9, 2020) https://en.wikipedia.org/wiki/Government_spending.
[2] Government expenditure and classification in India, UK Essays (December 5, 2016) https://www.ukessays.com/essays/economics/government-expenditure-and-classification-in-india-economics-essay.php.
[3] Government of India budget documents, THE TIMES OF INDIA (May 17, 2020) https://timesofindia.indiatimes.com/business/india-business/budget/how-india-spends.
[4] How does the federal government spend its money? ,THE TAX POLICY CENTRE (May 8, 2020) https://www.taxpolicycenter.org/briefing-book/how-does-federal-government-spend-its-money.
[5] Yogi Aggarwal, Govt giving false hopes on economy, DECCAN Chronicle (July 5, 2018) https://www.deccanchronicle.com/opinion/op-ed/050718/govt-giving-false-hopes-on-economy.html.