Why you need to worry about the government’s rising debt?
The government makes a budget for the country the same way you make one for your home. Just as you might take a loan from the bank to buy a car, the government also takes loans to make roads, bridges, etc; and just like how you cut back on shopping, outings and other such expenditures in an emergency situation, the government also needs to save money for emergencies.
Just as your budget gets disrupted when the expenses are higher than the income, the government’s budget also gets thrown out of whack. Look at it this way, add 10 to 12 zeros after your budget amount and that becomes the government’s budget.
Budget of Billions-Trillions Easier to Explain
No need to get confused. Let’s see what the math is for this budget of billions.
Where does the government’s income come from?
The government has many sources of income – income tax, corporate tax, wealth tax, all of which together are called direct taxes. In 2017-18, this tax amounted to nearly Rs 10 lakh crore.
Another source of the government’s income is indirect tax. This is tax paid on services and commodities like soaps, oils, etc. Now this has been converted to the goods and services tax (GST). This tax also amounted to about Rs 9.5 lakh crore.
Apart from taxes, the government makes money by selling property and shares in public companies. This amount comes to around Rs 3 lakh crore.
All added, the amount comes to around Rs 23 lakh crore.
The various states’ share in this comes to Rs 700 crore. If that is taken out, the central government is left with 16 lakh crore.
Account of Expenses
Just like at home, we spend money on food, housing, schools, medicine, etc, the government also has expenses for the country like education, healthcare, agriculture, infrastructure, etc. This expense is around Rs 7 lakh crore.
On defence, the expenditure is around Rs 3 lakh crore.
Whether it is the common man or the government, the expenses are the same – only their scale is different.
About Rs 4 lakh crore is spent on salaries for government employees.
Another Rs 3 lakh crore is spent on subsidies. Just like how you give your kids pocket money and pay for their other needs, the government helps pay for food, fertilisers, and other needs via subsidies.
It is an age-old adage to ‘live within your means’. But when we are unable to do this, how can the government? It also takes loans from banks and pays interest. This interest amounts to Rs 5 lakh crore.
Add all of this up and we get a total expenditure of Rs 22 lakh crore.
So, the income is Rs 16 lakh crore and the expenditure is Rs 22 lakh crore. That means the government is spending Rs 6 lakh crore over its income.
Now, where will this money come from? Obviously from loans.
This difference of Rs 6 lakh crore between income and expenditure is called the fiscal deficit.
The Effect of Government Loans on Us
If the government’s expenditure goes up, it makes things difficult for us. The banks have a fixed amount that they can give out as loans. When a significant part of this amount is loaned to the government, the amount left for us is small, which in turn makes our loans costlier.
If we are facing difficulties in getting a loan, and the loans we get are expensive, that is because each year the government’s loan amount increases.
Fiscal Deficit: A Little Bit Is Also a lot
When you hear that the fiscal deficit was 3.2 percent and has gone up to 3.5 percent, it might not seem like a lot. But an increase in 0.1 percent in fiscal deficit translates to Rs 16,000 crore.
In 2017-2018, the government had estimated its fiscal deficit to be about Rs 5.5 lakh crore, but the expenditure was significantly higher and the government had to take Rs 20,000 crore as loans.
This was a general decoding of the budget.
So, when Finance Minister Arun Jaitley presents the budget on 1 February, you will know what fiscal deficit and other significant numbers mean and will be able to follow along.
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