How to spend 300 Billion Dollars? Decoding the Indian Union Budget 2017-18

If I had 300 billion dollars with me, I would not be writing this article, I would be busy sipping lemonade on my personal island. Alas, this is not to be. I do not have 300 Billion Dollars. Heck, I have not even seen 3 hundred dollar bills.

Be that as it may. But what I gained in studying the topic for this article is no less than 300 Billion Dollars.

I will pay my respects to Arvind Subramanian and his team at the Ministry of Finance & thank Mr. Urjit Patel, Mr. Suresh Prabhu and finally Mr. Arun Jaitley for decoding (and succeeding at it!) the puzzle that is the Union Budget. This is not a right-winged stance. Credit should be given where due and these people are masters in this topic. So I salute them.

This article is about the Indian Union Budget, if you have not guessed it already.

And, why do I want to write about such a topic?

I want to write about it, because I want to create more awareness about it. The budget is a topic which for the most us is about Income tax slabs. I feel, as citizens of India, we ought to know what is going on in our country The Indian Union budget is about what lies in store for our farmer, our soldier our railways, our states and finally it is about us.

With this thought in mind, I have set out to do something, which I have never attempted before– which is to “Analyze” the Indian Union Budget 2017-18.

At the outset, let me apologize, if you feel that there are logical discrepancies. Follies, if any, are entirely mine. Secondly, the budget is such a vast topic that to fully comprehend it, (with words such as macro-economic trends, Brexit thrown in) you only require a degree at London School of Economics, a stint at the International Monetary fund, a professorship at Kellogg School of Management and a stint in the Planning Commission of India. Enough Said!

I, therefore, start with a huge disadvantage, having none of these accomplishments in my CV. (Post graduation in Telecom Management, with Finance as a Minor)

Very briefly, a budget is basically an Annual operating plan. Therefore, it is an indication of what the next year should look like. This indication is derived from the previous year’s experience, next year’s financial objectives and a buffer to account for contingencies. It is in no way 100% accurate, but nevertheless it does help in painting the broad strokes. It should contain Revenues, Operating Expenses and then some Capital Outlay as well (Capital Outlay include, for example, one-time costs towards building a dam on the Beas River, near the Pakistan Border).

If you want to simplify it further, then remember the golden rule à Profit or EBITDA = Revenues – Operating Expenses. However, this profit does not include interest payments, depreciation and amortization (Even though Depreciation is not an item which actually gets spent, it is presented as an expense as a standard Accounting Practice). A country also follows more or less the same principle as above when it declares a budget. Therefore, a country should have the following elements in its budget:-

·        Revenues :- Typical sources of revenue include taxes, revenues (interest) from loans it has given to other countries, railway revenues, revenues from space exploration (more on it, later in the article) etc.

·        Operating Expenses: – This includes the expenses towards various schemes, grants, loans to states and funds to various ministries like home, transport etc.

·        Capital Outlay which includes costs towards setting up new infrastructure like bridges, dams etc.

The notional profit is then what you get by subtracting the expenses from the revenues. So, let’s take a look at what the expenses look like, shall we? (All the figures quoted in the article can be easily verified by visiting www.unionbudget.nic.in )

The departments mentioned in the snippet account for the 80% expenditure of the total Budget. The completed list is very huge and hence not shown above for brevity. Below I mention some key highlights from the Budget.

1.      The Budget follows the well known Pareto Principle: – 20% of the items account for 80% of the expenditure.

2.      The total estimated expenditure for 2017-18 is INR 21 lac, 46 thousand Seven Hundred and thirty five Crore or USD 320 Billion.

3.      A staggering 80 USD billion (nearly 25%) is set aside as Interest Payments. (The loans which we took)

4.      The Ministry of Roads and Transports has an impressive budget of INR 65,000 Crores or USD 10 billion. The Railway Ministry also gets a whopping INR 55,000Crores (USD 8 billion)

5.      Ministry Of Defence has been allocated INR 360,000Crores or USD 54 billion.

6.      ISRO, which comes under the Ministry of Space, has been allocated USD 1 billion(~INR6600 Crore) – this is an important point, given the fact that ISRO can be a real money minting machine, since it is now swiftly becoming the agency of choice for companies/ governments/ organizations to launch their satellites. (In the process also becoming a threat to the established players:- ESA (European Space Agency) and NASA. An NYT cartoon seems to agree with meJ )

7.      Ministry of Agriculture has been allocated USD 6 billion which seems low, but the department of fertilizers gets USD 10.5 billion(~INR 70,000 Crore) dollar funding.

8.      Loksabha (Equivalent to House of Commons) has been allocated USD 100 million (INR 665 Crores)

Now, let us turn our attention to the revenue section of the Budget:-

1) The Unions Budget estimates total gross revenue of INR 19 Lakh Crore from taxes alone. Barring the revenue transfer to the states, this becomes INR 12.27 Lakh Crore or a whopping USD 183 billion dollar! This is a combination of both, companies and individuals.

2) The non-tax revenues stand at USD 43 billion. A major portion (Almost 90%) is from Interests (paid by our states and revenues from the railways)

3) The Income Tax revenues from Individuals stood at a paltry US 6 billion.

4) Education Cess hovers around 144 Million USD.

Comparison and Analysis

Any Budget can’t be seen in isolation, it has to be either seen from a larger perspective keeping the fiscal policy, macro-economic trends, inflation, and deflation in mind. I do not the pedagogy necessary to examine the budget through these vantage points, but I do have the option of comparing it to another country.

So, naturally, I will turn west towards the USA.

1) In India, around 40 million or 4 crore people, only pay income tax. In the USA, around 122 Million (12.2 Crore) + people pay Income tax. What is more surprising is that these 122 million contribute tax revenue of more than 1 trillion dollars! (That is a lot in INR!)

2) India’s Defence Budget is 54 billion, while the USA’s is more than 550 billion! China’s defence budget is 150 billion, 3 times more than India. (Recently, it went past more than 200 billion, thus 4 times)

3) India is paying 80 billion dollars in Interest payments alone! Its External debt is around 500 USD billion dollars (NRIs have deposited around 130 billion Dollars in the country, hedging it somewhat)

4) The transfers to the states are almost the same as our Income Tax revenue, ie 6 billion dollars. Therefore, our tax money is effectively paid to the states as a part of their treasuries.

Challenges which Lie Ahead

The study of the Indian Union Budget has been no less than a catharsis for me. Obviously, I can’t say that I am an expert in this arena (far from it), but I can say with certainty and some authority that the road ahead for us as Indians is definitely not a bed of roses. These challenges are like Pootna and are not immediately recognizable. (People who know about the Mahabharata will agree with the comparison. Pootna was a demon, disguised as a pretty lady who was sent by Kansa to kill Krishna. Today’s challenges are also unknown and disguised)

The first challenge is how do we get the people like shopkeepers, maid servants, stall owners in the tax ambit? That figure of 6 billion is frankly disheartening compared to our potential. Imagine if 20 Crore people pay taxes. Imagine if 40 Crore people paid their taxes. The government will have enough revenues to make education free; it would be able to provide health care to all of its citizens. The possibilities are countless.

The second challenge is corruption. How do we fight against it? It is corruption which does not let the taxpayer money to be used for the upliftment of the truly downtrodden. Corrupt people hoard cash and thus do not let it flow to the needy and the results are in front of us.

The government recently took a bold step by declaring the 1000 Rs notes as illegal. In my opinion, the new 2000 Rs. notes should not be made available to the public at all. Can we think of a system, where a person who wants to use 2000 Rs is made to give an explanation to the bank for using it?

In Europe, there are talks of discontinuing the 500 euro note by 2018. The USA only uses the $ 100 bill. This way, people are forced to use electronic money and not hard cash. If people used electronic money, then they will not be able to hoard it. It is as simple as that.

The third challenge is reduction of Non-performing Assets. There are simply too many bank loans which are not performing. (I Hope the King of good times is not reading this!) This is simply a loss to the public whose hard earned money is going down the drains and also increases interest rates.

The fourth challenge (and not the last one) is how to provide the workforce with skill-sets and bring them in the mainstream. Today there are more than 17 Crore people who are entirely unemployed or 65 Crore Indians who live on less than 33 Rs/day. (http://indiatoday.intoday.in/story/india-rural-household-650-millions-live-on-rs-33-per-day/1/451076.html)

The challenges are countless, but so are the possibilities!

The following lines from Robert Frost’s poem come to my mind, as I end this article:-

“The woods are lovely, dark and deep,  

But I have promises to keep,  

And miles to go before I sleep,  

And miles to go before I sleep”

Aniket Joshi

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