JULY 17, 2024

By Vijay Kumar

BUDGET is around the corner. Let's talk budget, not the usual highbrow economics stuff. Think of the budget as a country's financial dating profile - it's all about income and expenses, but like any good love story, it's never that straightforward. Let's decode the budget jargon.

In the budget universe, there are two main stars: Receipts and Expenditure. Receipts come in two flavours - Revenue Receipts and Capital Receipts. It's like sorting your pocket change into tax revenue and non-tax revenue jars.

The two major heads are Receipts and Expenditure.

Receipts are of two types - Revenue Receipts and Capital Receipts.

Again, Revenue Receipts are two, tax revenue and non-tax revenue.

Capital Receipts are three types -

1) Recoveries of loans, 2) Other receipts, and 3) Borrowings and other liabilities

Total Receipts = Revenue Receipts + Capital Receipts.

Similarly, expenditure has two heads, on Revenue account and on Capital account. Revenue expenditure includes interest payments.

Coming to deficits - There are three kinds of deficits, Revenue Deficit, Fiscal Deficit and Primary deficit. There used to be a Budgetary Deficit which is not mentioned these days.

Revenue Deficit is the difference between Revenue Receipts and Revenue Expenditure

Fiscal deficit is the difference between the sum of (Revenue Receipts, Recoveries of loans and other receipts) and Total Expenditure.

Primary deficit is the difference between fiscal deficit and interest payments.

Now let us look at the Interim Budget of 2024-25

Of the total revenue receipts of 30,01,275 crores, 26,01,574 crores come from taxes (and this is only the taxes net to the centre). The capital receipts of about eighteen lakh Crores includes borrowings and liabilities of over sixteen lakh crores. Of the total expenditure of 47,65,768 crores, 11,90,440 crores account for interest payment.

Where does this Rs. 47,65,768 CRORES go? As per the Budget Estimates for 2024-2025, these are the major items on which our money is spent -

You will see interest taking the spotlight as the ultimate budget buster. It is the one single major item of expenditure, which is nearly double our expenditure on defence, education and health put together.,

DEBT POSITION OF THE GOVERNMENT OF INDIA

As we unveil the financial tale of the Government of India, the outstanding debt and liabilities at the end of 2024-2025 are estimated to be a whopping 183,67,132.46 crores. It's like a never-ending saga of debt, making even the most seasoned financial wizards break a sweat. Broad details: -

(In Rupees crores)

Internal Debt comprises loans raised in the open market, Compensation and other bonds, etc. It also includes borrowings through treasury bills including treasury bills issued to State Governments, Commercial Banks and other investors, as well as non- negotiable, non-interest-bearing rupee securities issued to international financial institutions.

In addition, Government is liable to repay the outstanding against the various Small Savings schemes, Provident Funds, securities issued to Industrial Development Bank of India, and Nationalized Banks, Oil marketing companies, Fertilizer companies, Food Corporation of India and deposits under the Special Deposit Scheme and depreciation and other interest-bearing reserve funds of departmental commercial undertakings, etc., deposits of local funds and civil deposits.

Between the budget dramas and debt dilemmas, one thing's for sure – when it comes to finances, it's all about that balancing act of love, humour, and a sprinkle of economic magic. Cheers to a budget season like no other.

Pakistan Dues - A Comedy of Debts

I am never tired of repeating this this tale of debts and dues. It's like a never-ending series that started back in 1947 and hasn't wrapped up yet. Let's unravel the mystery of Pakistan's debt.

There is one item consistent and uniform in all Union Budgets from 1950. If you look at the STATEMENT OF LIABILITIES OF THE CENTRAL GOVERNMENT in the Receipts Budget of India, 2024-25, you will find certain interesting figures.

India's liabilities (internal and external debt) by the end of March 2025 would be rupees 1,83,67,132.46 Crores (183.67 lakh crores).

As per the Statement of the Liabilities of the central Government, the Total Liabilities are Rs. 1,83,67,132.46 Crores. From this, an amount of Rs. 300 crore is deducted and the net liability is shown as Rs. 183,66,832.46 Crores.

Now, what's the deal with this magical Rs. 300 Crores? This is supposed to be "Amount due from Pakistan on account of share of Pre-partition debt (Approx)".

This same amount had been shown consistently in all our budgets since 1950, including this year's.

In 1950-51, when our total liability was Rs. 2865 Crores, this 300 Crores was deducted to arrive at Rs. 2565 Crores. Thus, the dues from Pakistan constituted slightly more than 10 percent of our liabilities.

Why should we keep showing it in the budget year after year?

And the plot thickens! Pakistan isn't one to be left out. Interestingly, The State Bank of Pakistan proudly displays an amount of Rs. 2157,89,39,000 for the year 2023 as Provision for other doubtful assets - Provision against assets held with / receivable from the Government of India and the Reserve Bank of India - a peek into Pakistan's side of the debt dilemma.

Who owes whom?

Why are Dues from Pakistan shown in Statement of Liabilities of Central Government?

The position of the undivided Government as on the date of partition was that its outstanding liabilities exceeded its assets so that ultimately it was the debt that was being divided between the two Governments. On a rough estimate the outstanding debt of the Central Government as on the 14th of August 1947, was likely to be of the order of Rs. 3,300 crores.

Included in this is not merely the outstanding public debt but -

1. All its obligations to outside parties such as deposits in Postal Savings Banks,

2. Outstanding balances of Post Office Cash and National Savings Certificates,

3. Provident Fund Deposits of Government servants,

4. Amount likely to be paid to the British Government for surplus stores.

In his Budget Speech of 1948, Finance minister Shanmukham Chetty said,

On a very rough estimate this debt is likely to be of the order of Rs. 300 crores and the rate of interest may be near about 3 per cent. Pakistan's total debt is to be repaid in Indian rupees in fifty annual equated instalments for principal and interest. As a measure of assistance to the new Dominion in its earlier years it has been agreed that the first repayment should commence only in 1952. In addition to the Rs. 75 Crores given to her out of the cash balance of the undivided Government it has also been agreed that India would make available to Pakistan a further sum of Rs. 6 crores for meeting the expenditure on the setting up of Ordnance factories and similar special institutions required by her. This amount will also be added to Pakistan's debt. With this settlement, the terms of which, as the Deputy Prime Minister has already told the House, are generous and conceived in a real spirit of assistance to Pakistan, the purely financial problems arising out of the partition may be said to have been satisfactorily solved.

That was in 1948, but when it came to payment, nothing came.

In the 1952-53 budget, credit had been taken for a recovery of Rs. 9 crores from Pakistan as the first instalment of its debt repayment to India, but not a paisa came.

In his 1954 Budget Speech, Finance Minister Deshmukh said,

the budget for the current year placed the revenue at Rs. 439.26 crores and the expenditure at Rs. 438.81 crores leaving a nominal surplus of Rs. 45 lakhs. In balancing this budget, I had taken credit for a recovery of Rs. 18 crores from Pakistan on account of two instalments due from that country in repayment of the partition debt. I have been having discussions on this subject with the Finance Minister of Pakistan and we both hope that it will be possible to commence the repayment of the debt in the coming year. This single factor has made for a deterioration of Rs. 18 crores in the revenue budget for the current year and converted the surplus of Rs. 45 lakhs into a deficit of Rs. 16. 96 crores.

In the next year's budget speech, he said,

I am not taking any credit for repayment of partition debt by Pakistan in view of what has happened in the last two years.

So, will we ever collect these mythical dues from Pakistan? The plot thickens, the debts linger, and the punchline remains a mystery, waiting to be unveiled in the debt comedy.

Until next week