INDIAN GOVERNMENT: NEED TO SIGNIFICANTLY UPGRADE FINANCIAL MANAGEMENT

Indian economy is growing at an unprecedented pace. Foreign Direct Investment is coming in unabated, Indian Companies and businesses are doing extremely well and accordingly the tax collection of Government of India has significantly improved during last 3-4 years. Even during the current financial year fi rst 6 months collection of tax revenue have increased more than 40%. Even State like Bihar has witnessed 400% increases in central tax collection. The overall tax revenue collection of the government is more than Rs. 500,000 crore. The financial management of the government is however in limbo and a debt trap is evident by the fact that 99% of tax collection is spent to meet interest cost and debt repayment by the Government. The Government expenditure is being met by fresh borrowings or by trade defi cit. The Government net borrowing is growing by about 30% per annum. The position is becoming bad to worse. The NDA government led by Bhartiya Janata Party had enacted FRBM Act providing a parliamentary directive to the government to contain its expenditure. The UPA government led by Congress Party has already extended by 2 years the period of achieving nil fi scal defi cit and limiting current account defi cit. The XIth Plan Approach Paper released by Planning Commission is seeking a further extension of 2 years for implementing FRBM Act. CPM has recently advised the Government to withdraw FRBM and to remove all constraints on necessary and desirable revenue spending and also to continue fertilizer subsidy, power subsidy, water subsidy to the agricultural sector. It may be noted that Capital expenditure of the Government and specially the plan capital expenditure is not even 5% of the total budget. No signifiant investment has been made by the government in last 4 years in power sector, irrigation sector, roads and bridges, ports, dams, airports, telecom and other infrastructure sectors. The capital expenditure on hospitals, colleges, schools, training centers and other important areas of education is being fully ignored and is not even half percent of the plan expenditure. The education cess being collected by the government is also not being utilised properly. No major projects have been undertaken to address the issue of drought or flood and lack of irrigation facilities. The government is depending on private sector initiatives in every area. The Finance Minister is openly saying that the government has no fund for spending on plan capital expenditure needed in real sense to empower the nation. In fact the Central Government’s helplessness is evidence of a complete failure of visionary thinking and lack of basic understanding of financial management Principles and techniques. The government needs to undertake following steps on a most urgent basis:

• Allocate at least 40% of its tax collection to plan capital expenditure
• To contain the revenue expenditure of the government to a maximum of 60% of its tax collection. This revenue expenditure would include interest payment on the amount borrowed.
• There is an immense need to cut Government overheads by Zero based budgeting technique even if the various subsidies might have to continue for next 2 years to 4 years
• It is important to empower the poor and needy including agricultural sector, scheduled casts and tribes and landless laborers, unemployed youths and other people below poverty line and those belonging to backward classes. The real empowerment will happen by creating infrastructures, jobs and growth, which will mainly come from capital expenditure.
• All the Government Schemes, for the purpose of revenue expenditure has to be self-supporting except in few exceptional cases.
• Massive facilities for education and training have to be developed.
• Large expenditure are to be incurred on power sector, roads, bridges, ports and airports by the government. The government has to take a challenge to run these institutions efficiently and economically by incurring large capital expenditure and self supporting revenue model on the lines of businesses with appropriate cross subsidisation.