Surprise Surprise! Thanks to Congress/UPA, India is in the company of Greece if we consider fiscal deficit

by rawemotions Fri Dec 06, 2013 2:34 am

http://www.firstpost.com/blogs/business-blogs/no-better-than-enron-the-finmin-guide-to-hiding-the-fiscal-deficit-1270457.html

Apparently UPA has been doing some skullduggery and funded about 100,000 crores of fiscal deficit using some non-standard way, instead of the standard way of funding it, which would be more open.

While Congress and the supporting parties like SP/BSP/DMK/TMC are directly at fault, I hope BJP raises this and makes it an election issue. The opposition should also raise this in the Parliament.

This explains why India has a very low rank close to Greece, in Blackrock Sovereign Risk Index Ranking.

Excerpts
Basically the welfare programmes of the government get financed through the budget and therefore the government securities/treasuries market. Much of the 3F subsidies – fuel, food, and fertilisers – get financed through something called “special securities” or “special banking arrangements”. When the “special securities” are used for subsidising the fuel complex, they’re called “oil bonds”. Some of this is off balance-sheet, off-budget financing. The rating agencies count all this towards the fiscal deficit – as they should – but local analysts it seems, are more forgiving. Proper accounting for subsidies financed through “special securities” ,“special banking arrangements” or other arrangements, would probably take the Centre’s fiscal deficit to well above 6 percent of GDP, which is about right. Throw in 3 percent for the state government deficits, and we’re getting close to Greece’s levels of 10 percent during the eurozone crisis.

by Merlot Daruwala Fri Dec 06, 2013 3:43 pm

Haha..Unkil, it's amazing how you consistently find writers whose understanding of economics is as cockeyed as your own (or alternatively, these are the shady sources from where you seem to be learning your economics).

Greece's 10% fiscal deficit was not an issue by itself. The problem was the manner in which the government was funding its spend - by borrowing way beyond its means. Public debt of 300%+ of GDP and creditors' refusal to lend more is what sparked the crisis.

by rawemotions Sat Dec 07, 2013 8:47 am

Merlot Daruwala wrote:

Greece's 10% fiscal deficit was not an issue by itself. The problem was the manner in which the government was funding its spend - by borrowing way beyond its means. Public debt of 300%+ of GDP and creditors' refusal to lend more is what sparked the crisis.

Jokers of first order! You need to go and first learn your compound interest.

If you keep running the country at 10% deficit, it would not take long to reach 300%. At 10% deficit, within a matter of few years, a big chunk of the revenue will start going towards interest payments OR there will be massive inflation (if money was printed to bridge the deficit).

You will reach 300% within 11.2 years, at 10% deficit compared to 37.2 years at 3%. The latter will give time for the country to beat the deficit at higher growth and there is a possibility for it to eventually make it zero and live within its means.

That is why countries have a fiscal responsibility act, including India which says fiscal deficit cannot exceed 3% of GDP
http://en.wikipedia.org/wiki/Fiscal_Responsibility_and_Budget_Management_Act,_2003

Your own PM's EAC council is now asking for its re-instatement of the act which was suspended in 2009 in the wake of financial crisis. Furthermore, eminent economists and former RBI folks have reprimanded the government for indulging in this kind of skulduggery. Please see text in RED below.

Excerpts from the Wiki Link above
It was reported that the Thirteenth Finance Commission of India was working on a new plan for reinstating fiscal management in India.^[20] The initial expectation for revival of fiscal prudence was in 2010–11^[14] but was further delayed. Finally, the government did announce a path of fiscal consolidation starting from fiscal deficit of 6.6% of GDP in 2009–10 to a target of 3.0% by 2014–15^[21] However, eminent economist and ex-RBI Deputy Governor, S.S. Tarapore is quick to highlight the use of creative accounting to misrepresent numbers in the past. Furthermore, he added that fiscal consolidation is indeed vital for India, as long as the needs of the poor citizens are not marginalised. This need for financial inclusion of the poor while maintaining the fiscal discipline was highlighted by him as the most critical requirement for the 2011–12 Budget of India.
More recently, in February 2011, the PMEAC recommended the need for reinstatement of fiscal discipline of the Government of India, starting 2011–12 financial year.^[22] In FY 2011–12, it is almost certain that government will cross budgetary fiscal deficit target of 4.6% and it will be around 5%.

http://en.wikipedia.org/wiki/PMEAC

Excerpts
In February 2011, PMEAC recommended to the government to initiate the process of fiscal consolidation given that the international financial crisis has started to ease and the government had to re-initiate its commitment to the Fiscal Responsibility and Budget Management Act.^[16]

EU has the same http://en.wikipedia.org/wiki/Stability_and_Growth_Pact,
and they forced Greece/Spain/Portugal/Ireland to adhere to its norms precisely because of these acts.

Your own favorite Congress FM is trying to tom tom repeatedly that fiscal deficit has been under control. It is just as we now understand, allegedly, all he has done is to indulge in the same skulduggery that Tarapore talked about couple of years back. If 10% is acceptable why doesn't he say so , and just avoid all this hiding business.
http://m.indiatoday.in/story/p-chidambaram-inflation-current-account-deficit-core-sector-bank-credit-fiscal-deficit/1/321291.html

Excerpts
However, one question that Chidamabaram did not elaborate on was how the government planned to meet its fiscal deficit target of 4.8 per cent. "I maintain, we will contain the fiscal deficit target to 4.8 per cent,"' he said, without giving any details. Fiscal deficit occurs when government's total expenditure exceeds the revenue that it generates (excluding money from borrowings).

Why are all these folks saying that we need to control deficit and set targets of low 3's or 4's if according to you 10% is acceptable ?

by Merlot Daruwala Mon Dec 09, 2013 4:59 am

rawemotions wrote:
Merlot Daruwala wrote:

Greece's 10% fiscal deficit was not an issue by itself. The problem was the manner in which the government was funding its spend - by borrowing way beyond its means. Public debt of 300%+ of GDP and creditors' refusal to lend more is what sparked the crisis.
Jokers of first order! You need to go and first learn your compound interest.

If you keep running the country at 10% deficit, it would not take long to reach 300%. At 10% deficit, within a matter of few years, a big chunk of the revenue will start going towards interest payments OR there will be massive inflation (if money was printed to bridge the deficit).

Unkil, understand some basic economics before you start giving lessons to others. One can balance the budget (ie have zero deficit) but still be in a debt trap. Sure, the deficit is an important metric and it worsens the problem but like I said in my post, the 10% figure by itself didn't spark the crisis. It is the debt burden built over a period of time, which the country could no longer support, which sparked the crisis.

rawemotions wrote:Why are all these folks saying that we need to control deficit and set targets of low 3's or 4's if according to you 10% is acceptable ?

In addition to an understanding of economics, you seem to have a deficit in reading comprehension. I never said 10% is an acceptable deficit. I only said that deficit by itself wasn't the cause of the Greek crisis. The US itself ran up deficits of 9-11% in the last few years but is very much solvent, so don't work your chaddis in a twist over just the high deficit figure. See it in conjunction with the quantum of public debt.

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Surprise Surprise! Thanks to Congress/UPA, India is in the company of Greece if we consider fiscal deficit

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Re: Surprise Surprise! Thanks to Congress/UPA, India is in the company of Greece if we consider fiscal deficit

Re: Surprise Surprise! Thanks to Congress/UPA, India is in the company of Greece if we consider fiscal deficit