The central government is in dire need of money for subsidies. Its borrowings could lead to price rise
Despite the tall claims by the government that the economy is on the recovery path, the indications are pointing in the opposite direction. The industrial production is down 26 per cent and the fiscal deficit is likely to go up, the economy is not all that healthy as it is made out to be. The government has sought additional rupees lakh-plus crore as supplementary demands for grants for 2022-23. This amount, according to the government will be used to meet the higher subsidy bill. This extra money that is over and above the budgetary allocation is required to fund subsidies like fertilizers, food and LPG. Rs1.09 lakh crore would be required to meet the fertilizer and urea subsidies; more than Rs 80,000 crore for the Department of Food and Public Distribution, three-fourth of which is earmarked for the ‘Pradhan Mantri Garib Kalyan Anna Yojana’, and Rs 22,000 crore to be paid to oil marketing companies to make good their loses in LPG cylinder sales. For the national rural employment guarantee scheme, an additional outlay of Rs 16,400 crore has been sought. It is thus obvious that the govt has run out of money. Despite the rise in tax collections and other revenue it is short of funds to meet its requirements. Interestingly enough, Prime Minister Modi is himself a biggest critic of subsidies. He has time and again spoken about it, and said how bad it is for the economy. He has called the govt providing free electricity and water supply as “revadis”.
A BJP campaign before recently held elections targeted the Aam Aadmi Party for giving subsidies in Delhi, criticizing the ‘revadi culture’ promoted by the AAP govt. But what applies to AAP govt in Delhi, also applies to the BJP govt at the centre. It cannot be an election plank and conveniently forgotten thereafter. This additional borrowing by the government to fund nonproductive heads is going to add to the pressure on the fiscal management and we are in for higher fiscal deficit which would reflect in higher inflation rate. According to the conservative estimates the fiscal deficit is likely to exceed the budget target (6.4% of GDP) by around Rs 80,000 crore to Rs 1 lakh crore.
The BJP govt at the centre would do well to follow the Prime Minister Modi rather than Kejriwal when it comes to distributing ‘revadis’ and draining the already stressed economy.
