Union Budget 2021 : Part III – Macro Economy Analysis

Too much information is available on the Budget now. When I see a series of graphs, it reminds me of an ECG report! So, I don’t wish to repeat or burden you with such detailing. Maybe we will look at some important points and a few interesting data, only Points…..

Point # 1 How much money does the Government propose to spend between April 2021 and March 2022?

Total Expenditure is Rs.34, 83,236 Crores (Rs.34,83,236,00,00,000)

Of which, how much is revenue expenditure? (Revenue expenditure is running expenses. At a family level, we spend on milk, newspaper, provisions, cloth, rent, interest, travel, etc. Similarly, at the Government level, they spend on Salaries, Interest, Subsidies, Travel, etc.). Such expenses total up to Rs.29,29,000, translating to 85% of total expenses.

Only 15% is used for Capital Expenditure. At a family level, we can compare this with the purchase of a Car, flat, Investments, etc. At the Government level, it is Roads, Dams, Tunnels, Buildings, Equipment, etc.  This number – Rs.5.54 Lakh Crores, caught the attention of newsmakers and stock traders. They feel, even spending 15% on capital expenditure is a big deal.

Point # 2 Does the Government collect so much taxes to meet the expenses?

Not really. All the money is not coming from our tax money. Here is the break up (Rs.in Crores)

Income Tax (by Individuals like us)5,61,000
Corporate Tax (Income Tax paid by companies)5,47,000
Customs Duty (Tax on import of Goods)1,36,000
Excise Duty (Mainly on Petrol and Diesel)3,35,000
GST (only Central Government Share)6,38,059
Total22,17,059
Less: Share of State Governments and transfer to National Calamity Fund6,71,663
Net Tax Revenue of the Central Government 15,45,397

Other Receipts

Interest, dividend, Grants, etc. (like Government is a shareholder in Banks and get dividends from them)2,43,028
Total Revenue Income (A)17,88,424
Total Revenue Expenses (B)29,29,000
Revenue Deficit (A) –(B) 11,40,576

What does Revenue Deficit represent?

Simple. The recurring expenses are so high, even the entire Tax Collection is not sufficient to meet them. In other words, only 60% of the running expenses is met from the Tax collections. A very bad state of affairs, right? Can we run our home or office this way? We will have sleepless nights if we resort to such a practice!

Point # 3 How is this deficit met?

When we run short of money, we will borrow. The Government is borrowing Rs.14,35,428 Crores.

After meeting the expenses of Rs.11,40,576; the balance of Rs.2,94,852 plus capital receipts like disinvestment, cash balance, etc., of Rs.2,59,383 are invested in building Capital Assets. (totaling to Rs.5.54 Lakh Crores)

When you see this heartburning data, you may come up with two vital questions –

Question # 1 What is the loan balance of the Government, payable as of date?

Question # 2 Where are they blowing up so much money?

Total Loan of the Government is Rs.100,00,000 Crores (100 Lakh Crores)

Assuming the population of India 130 Crores

Loan per Indian is around Rs. 77,000

Where do they spend the money of Rs.29,29,000? (Rs.in Crores)

Pension1,89,328
Defence3,47,088
Subsidy3,35,361
Education93,224
Interest (Look at this figure)8,09,701
Home Affairs1,13,521
Rural Development1,94,633
Transport2,33,083
Others6,13,061

Now the important point – Capital expenditure of Rs.5.54 Lakh Crores. This is essentially spending to create wealth; which in turn will start generating revenue over the years or develop the infrastructure of the country.

How is the above amount allocated?

It is allocated to each Ministry. I will give a sample list for your understanding –

DEPARTMENT OF ATOMIC ENERGY9,875
MINISTRY OF DEFENCE1,40,234
MINISTRY OF RAILWAYS1,07,100
MINISTRY OF ROAD TRANSPORT AND HIGHWAYS1,08,230
DEPARTMENT OF SPACE8,228
OTHERS (This amount is distributed among 96 different departments)1,88,796
TOTAL5,54,235

The spending on Road, rail, power, hospitals, etc., are part of Government Capital Expenditure. This amount is not coming from taxes. It is borrowed money; hope it will be spent productively. If not, in the coming years our tax paid money will be spent to repay the loan and service its interest!

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant at Bangalore, India. He has 26 years of experience in the areas of NRI matters, Income Tax, Setting up Business. He is also an Insolvency Professional and Registered Valuer (F&SA)He can be contacted at [email protected]

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