Debt Servicing is Crippling India’s Finances as Government Debt almost Doubles
Interest payment on government debt is the single largest and most crippling of government expenditure. Unfortunately, interest payment, which is a non value creating expenditure, can only go higher every year as the government adds on to its debt given that it runs a fiscal deficit that is financed primarily by market borrowing.
Subsidies, which is another non value creating expenditure accounts for 13% of total expenditure with food subsidy accounting for 7%, fertilizer subsidy accounting for 4% and petroleum subsidy accounting for 2% of total expenditure. However, unlike interest payments, subsidy bill can be brought down by the government and the subsidy bill is down in 2015-16 due to the sharp drop in global crude oil prices (down by close to 50%) and the almost complete pass through of petrol and diesel prices to the end user.
Defence accounts for 14% of total expenditure and given that it’s a priority for the country, the defence bill will stay high.
Plan expenditure accounts for 26% of total expenditure. Plan expenditure includes Rs 347 billion (6% of total plan outlay) on MNREGs (Mahatma Gandhi National Rural Employment Guarantee Scheme), which falls under the MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act).
The fuel sector takes up Rs 766 billion while energy takes up Rs 614 billion of total plan outlay. The rest of the plan outlay is taken up by Railways, Roads, R&D , Education and other such sectors of economic and social importance. Hence the benefits of plan expenditure are not direct in most cases and work with long periods of lag in others.