Given the UPA’s unfortunate track record of rolling over subsidies on petroleum, fertiliser and food—the total adds up to over 1 percentage point of GDP—it is vital that the next government restores the credibility of the budget numbers. In the past, petroleum subsidies, for instance, have been shown as being cut drastically in the budget, only to have them ballooning or getting rolled over later. Indeed, even the estimates made for the Food Security Act appear massively understated—by around R1 lakh crore a year—if you go by the CACP’s estimates.
Another point, made by ratings agency Crisil, is how the budget targets are being achieved. As compared to the 13th Finance Commission’s Central capital expenditure target of 4.5% of GDP by FY15, the actual for FY14 was a mere 1.7%. If you add the revenue grants provided by the Centre to the state governments for capital creation, the spending does not rise to more than 2.8% in FY15. In other words, the brunt of the fiscal adjustment is taking place via capital expenditure while expenditure such as that on subsidies rises unchecked. In FY13 and FY14, Crisil says, cuts on productive spending amounted to
R1.8 lakh crore, and much of this took place in education and health.
Some justify this by arguing that capital expenditure by the government tends to be less efficient than that by the private sector—by this logic, it is good enough that the government open up more avenues for private investment. Not true, says Crisil—while citing data—since increased capital spending by government is what induces more capital spending by the private sector. So, for instance, had there been more public sector investment in coal mining, private sector power investment levels would have risen. Similarly, as the high levels of infrastructure NPAs show, private sector investment in certain areas will need to be supplemented by public investment, at least for now. So, not only does the next government need to find ways to control expenditures, it has to make more cuts in subsidies and other wasteful expenditure while raising productive or capital expenditure.