Govt Budgeting

on
2020-2021 Budget 

  • Nirmala Sitharaman - Blue cover - Blue sky thinking 
    • GDP growth estimate - 7 % (19-20)
    • GDP growth rate - 6.8 % (18-19)
  • Target 2025 - 5 tr $ (8% growth ), 2032- 10 tr 
  • Jal Jivan Mission - Har ghar jal till 2024
  • 2 October 
  • New Space India limited
Fiscal consolidation / FP/Fiscal management 

  • FRBM -  40 % c, 20% s , FD- 2.5 %, RD- 0.8% - 2023
  • FD - 5.9% f11 to 3.4 f18-19, Debt/GDP- 44.5%
  • Market borrowing, x RBI @ Market IR
    • 98% debt fixed IR
    • Interest payment to revenue receipt ratio IP-RR  52%- 2000s to 35.3% f17
  • Importance - 
    • Macro- eco stability 
    • Increase investment - 
    • Unsustainable debt - Increase risk of default downgrading sovereign rating 
    • Crowding out pvt sector - slower industrial & capital asset growth -low employment
    • Control inflation - debt - real interest rate reduces, prompt investment in gold ,real estate - poor eco liquidity & black money 
    • Intergenerational parity
  • Art 292 - ceiling on debt legislation 


  • Issue
    • Creative accounting - 
      • FD understated - 
      • rolling over subsidy bill & dues to state to next FY, 
      • PSE like LIC purchase stake in disinvestment,
      • window dressing,
      •  headline FD falling but not debt/gdp 
    • Use of extra budgetary resources - fund of LIC ,SBI
    • Absence of uniform fiscal consolidation rules for C,S 
      •  cess , surcharge -state no share 
      •  against fiscal federalism, decentralization & devolution 
      • A293(3) - const check for state over market borrowing
      •  RBI control their deficit
    • Non adherence to FRBM act - 4 pauses in deficit target
    • Fiscal populism - loan waiver , tax waiver
    • Poor inst infra for monitoring  - CAG report post facto  
    • Revenue expenditure - 80% of total exp of state 
    • Coordination btn state division plan & Budget division (monitor frbm)
    • Poor budgetary forecast 
      • overstate revenue projection 
      • understate expenditure ,
    • Limited Tax buoyancy -

  • NK singh 15th FC cp-  Independent Fiscal council -  to enforce fiscal rule & rec changes in fiscal strategy
    • Prepare multiyear fiscal forecast - c,s
    • Define sustainable debt
    • Independent assessment & check competitive populism
    • Transparency , confidence among investor -d,f
    • Culture of proper disclosure & good accounting
    • Enhance coop btn GSTC & FC
    • Develop public opinion favourable to Fiscal discipline 
  • WF 
    • Stringent , apolitical , transparent , criteria for approval of state market borrowing ua 293
    • Re-include F discipline criteria in Tax devolution, not used by 14FC

G- Debt 
  • Central gov - 46.5 %
  • Public debt (CFI) - 41% 
  • External - 2.9 %
  • Internal - 38.2 %
    • Marketable - 33%
  • State - 24.3 (24- f17) - uday, loan waiver, 7th pay com,  reducing central receipts (cess, surcharge proceeds not shared)  
    • Investor confidence
    • Crowding- out effect
    • Credit, industrial, capital asset growth
    • Financial repression of bank- 
      • Buy Gsec Reduced Profit, inflation--> Real Intrest Rate Reduces --> Investment in Gold & real estate, Poor credit rating -> exchange rate risk , Intergenerational parity  
  • PDMA (Public Debt Management Authority)(ext + Int), 
  • Medium term debt management strategy , long tenor ,
    • Currency RM - increases FDI access to gsec 
    • Rollover risk - elongate maturity 
    • IR Risk floating rate, inflation indexed g- sec, 
    • Commodity Price risk - Sovereign Gold bond scheme, 
  • Market development,
Public expenditure council 
  • Like GST 

Parliamentary budget office
  • Features - baseline estimate survey 
  • Independent & obj eco forecast 
  • Analysing executive budget proposal & cost - benefits
  • Provide medium to long term analysis
  • Obj analysis of official forecast
  • Non -partisan , neutral , independent analysis 
  • Other offices 
    • Public account committee (PAC) 
    • Finance com 
    • Dept. standing com 
    • CAG

Outcome budgeting
  • Link budgetary outlays to specific 
    • outputs i.e. tangible service , infra provided , &
    • Outcome is short & long term benefit to ppl

  • Introduced in 2005-06
  • Scheme , policy ,program of each dept , ministry mapper
  • Challenge -
    • mapping , 
    • statutory obligation
    • correlation,
    • quantification
    • end up being outlay budget

Private investment 
  • ES18-19 - pvt investment key driver of Growth , Jobs , export , Demand, capacity creation , tech innovation , creative destruction 
  • Goal - $5 tr economy  by 2024-25
  • 8 % sustained eco growth 
  • Virtuous cycle of saving , investment , export , PI
  • China , E Asian countries utilized this virtuous cycle 
  • Economy - interwoven sys beyond equilibrium ,dumps 2 assumption
  • Eco equilibrium - eco balanced until outside shock 
  • Eco functions in silos - social , inst, features don't impact it
  • Tactics to navigate constant dis- equilibrium 
  • Behavioural economics - psychology
  • Data - as public good - evidence based policy making , targeting , uncover unmet 
  • Other factor of growth - saving , job , exports
  • Nudge eco - desirable behaviours, social norm conformity 
  • Dedicate behavioural unit in NITI 
  • BADLAV, Sundar Bharat , Jan dhan 
  • Behavioural audit , cooperation with state 
  • Laissez fair --> Nudge ---> incentivize --> Mandate


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