India to Borrow $100 Billion For $240 Billion 2010 Budget

India's 2010-2011 budget of 11.08 trillion rupees ($240 billion) represents an increase of 8.6% over 2009-2010. The government plans to borrow $100 billion to finance the deficit during the fiscal year.

Going forward, India plans to cut the deficit to 5.5 percent of gross domestic product in the year starting April 1 from 6.9 percent the previous year. The effort, which relies on tax increases and 400 billion rupees ($9 billion) of state asset sales, is aimed at shrinking a debt burden equivalent to about 82 percent of the GDP.

The defense allocation for 2010-2011 is up another 8.13 percent on top of the massive 34% increase in 2009-2010, according to media reports.

India's defense expenditure has been raised to Rs.147,344 crore (Rs.1.47 trillion/$32 billion) for 2010-11, up 8.13 percent from the revised estimates of the previous fiscal, in the budget presented by Finance Minister Pranab Mukherjee in the Lok Sabha today.

According to the Wall Street Journal, India is one of the largest buyers of foreign-made munitions, with a long shopping list which includes warships, fighter jets, tanks and other weapons. Its defense budget is $30 billion for the fiscal year ending March 31, a 70% increase from five years ago. The country is preparing its military to deal with multiple potential threats, including conflict with China and Pakistan.

"For 2010 and 2011, India could well be the most important market in the world for defense contractors looking to make foreign military sales," according to Tom Captain, the vice chairman of Deloitte LLP's aerospace and defense practice.

In addition to defense, the much-needed social sector spending has also received a significant boost in the new budget.

• The spending on social sector has been gradually increased to Rs1,37,674 crore in 2010-11, which is 37% of the total plan outlay in 2010-11.

• Another 25% of the plan allocations are devoted to the development of rural infrastructure.

• Plan allocation for school education increased by 16% from Rs26,800 crore in 2009-10 to Rs31,036 crore in 2010-11.

• In addition, States will have access to Rs3,675 crore for elementary education under the Thirteenth Finance Commission grants for 2010-11.

• An Annual Health Survey to prepare the District Health Profile of all Districts shall be conducted in 2010-11.

• Plan allocation to Ministry of Health & Family Welfare increased from Rs19,534 crore in 2009-10 to Rs22,300 crore for 2010-11.

With 4.57 trillion rupees (about $100 billion) budget shortfall, the Indian government plans record levels of borrowing next year and will count on surging economic growth to help cut its fiscal deficit, putting pressure on the Reserve Bank of India (RBI) to be more aggressive in its monetary tightening, according to Reuters. Interest rate hikes by the RBI will raise the cost of borrowing by the private sector companies, and hurt India's economic growth.

Some analysts have praised the plan to reduce the fiscal deficit to 5.5 percent of the projected GDP in the new year from 6.9 percent of actual GDP this year, with further declines in planned coming years, and a RBI deputy governor said the budget addressed concerns on fiscal discipline. But other analysts said India had missed a chance to take more aggressive fiscal measures as Asia's third-largest economy gathers speed, reinforcing perceptions that the coalition government lacks the firmness to make tough decisions.

On top of the union budget deficit of 6.9% of GDP, the gross fiscal deficit of state governments is budgeted to increase to 3.2% of GDP in 2009-10 (Budget estimates), compared with 2.6% of GDP in 2008-09 (revised estimates). Revenue account turned from a surplus of 0.2% in 2008-09 (RE) to a deficit of 0.5% of GDP in 2009-10 (BE), according to a study 'State Finances: A Study of Budgets of 2009-10,' released by the Reserve Bank of India (RBI).

The study also noted that state-wise, revenue accounts of four states West Bengal, Punjab, Kerala, and Rajasthan recorded revenue deficits during 2008-09 (RE). Jharkhand turned from a revenue deficit to a revenue surplus state. In 2009-10 (BE), 10 states are expected to turn revenue deficit from a surplus status in the previous year. Overall, the revenue account is expected to be adversely impacted in the case of 23 states during 2009-10 (BE), the study noted.

The debt-GDP ratio of state governments came down to 26.2% in 2008-09 (RE) from the peak level of 32.8%, at the end of March, 2004. However, outstanding debt is budgeted to increase marginally to 26.5% of GDP by end-March 2010. The XII Finance Commission had recommended that states achieve a debt-GDP ratio of 30.8% till the end of March 2010.

In an opinion piece on Countercurrents, India's former commerce minister has said that Mukherjee "has failed to address the core issues of reducing public debt, curb the dangerously high fiscal deficit[ even the claimed target for 2010-11 of 5.5 per cent is too high, and will represent a huge diversion of funds with public sector banks away from private sector investment], and introduce innovation into the ailing industries such as Textiles, Food Processing, Power Generation and Distribution. Hence, despite his heroic effort to put together a promising Budget, he has at best produced a damp squib for financial reforms".

Swamy is particularly concerned about India's growing public debt which is now "over 90% of GDP and on an exploding trajectory".

Although rising public debt is always a concern, I think India's saving grace is that about 90% of its public debt is owed to its own citizens who save about 30% of their income. Of the rest, a big chunk of debt is held by IFIs like the World Bank, which, are not likely to press for quick repayment. At $230 billion, India's external debt accounts for 22% of GDP as of March 2009, according to Reserve Bank of India. In terms of the international comparison of external debt of the twenty most indebted countries, India was the fifth most indebted country in 2007.

Swamy further said that the Indian "agriculture has been poorly performing since 2003 due to investment starvation and lack of adequate purchase price. Indian manufacturing sector unlike the Chinese’ is domestic demand driven. IT software giants were skillful in finding new markets and cheaper labor from tier II and III cities in India. All, no thanks to government".

Members of the opposition in Indian parliament boycotted much of the budget session, saying government plans to increase fuel prices would further add to the woes of millions of Indians hit by high prices.

Related Links:

Highlights of Indian Budget 2010-2011

Indian Budget 2010-11: Strapped And Shackled By The Past

Reserve Bank of India: India's External Debt

India Budget Raises Borrowing to New Records

South Asia Slipping in Human Development

India's Defense Budget: Guns Versus Butter

Indian Military Brass Challenges China and Pakistan

India's Defense Spending: Facts Beyond Figures

Pakistan's Defense Budget

World's Top Arms Importers

PHI Poverty Hunger Index


Riaz Haq said…
Pranab Mukherjee has just revealed the outlines of India's 2011 budget.

I think the double digit increases of 24% and 20% on education and health care in 2011 Indian budget are a much-needed welcome change.

What is not reassuring, however, is the fact that social spending still lags defense in India, a country with the world's largest population of poor, hungry, illiterate and sick people.
Riaz Haq said…
Earlier this month, the United States approved a $952 million sale of helicopters, missiles, engines, targeting and positioning systems, and other equipment in response to a request made by Pakistan last year to help its efforts to counter domestic insurgents.\

“This proposed sale will contribute to the foreign policy and national security of the United States by helping to improve the security of a country vital to U.S. foreign policy and national security goals in South Asia,” reads the certification by the U.S. Defense Security Cooperation Agency (DSCA) notifying Congress of the possible sale on April 6.

Yet national security may just be a pretext used for the swift clearance of this deal.

According to Stockholm International Peace Research Institute, selling arms may once have been “a major foreign policy and security tool” for the U.S., but this practice has been replaced by the need to prop up the U.S. arms industry at a time when the country’s own military expenditures have dropped.

“To sell or not sell weapons depends only upon political and strategic imperatives,” said Dr. Pervez Hoodbhoy, a professor of physics at the Forman Christian College University in Lahore, who is also a national security analyst.

Speaking to MintPress News, he added that that all arms suppliers, including the U.S., use human rights as a “fig leaf.” As an example of this, he pointed to the United States’ massive arms sales to Saudi Arabia, “which supports extremist groups across the world and mistreats minorities badly.”

“Today, given that Pakistan is fighting some Taliban groups instead of supporting them as earlier, it has become politically expedient and financially profitable for the U.S. to sell to Pakistan as well,” Hoodbhoy concluded.

Likewise, Commodore Uday Bhaskar, the director of the independent Society for Policy Studies in New Delhi and former head of the government-funded Institute for Defence Studies and Analyses (IDSA) and the National Maritime Foundation, a non-governmental think tank, noted the sale should be tied to “stringent conditions” on Pakistan’s army’s compliance with terrorism and human rights frameworks.

In 2014, global defense trade increased for the sixth straight year to $64.4 billion, up from $56.8 billion, with the U.S. and Russia topping the list of arms exporters. Soon after the approval of its sale to Pakistan, the U.S also approved a potential $57 million sale of air-to-surface missiles to Egypt.

According to IHS, a global information company, there has been “unparalleled demand from the emerging economies for military aircraft” since the escalation of “regional tensions” in the Middle East and Asia Pacific.

IHS’s Global Defense Trade Report, released in March, lists the top defense exporters and importers in 2013 and 2014 and shows how these rankings have changed year-on-year:

Top Defence Exporters Top Defence Exporters
2013 2014
1. United States 1.United States
2. Russian Federation 2. Russian Federation
3. France 3. France
4. UK 4. UK
5. Germany 5. Germany
6. Israel 6. Italy
7. China 7. Israel
8. Italy 8. China
9. Sweden 9. Spain
10. Canada 10. Canada

Top Defence Importers Top Defence Importers
2013 2014
1. India 1. Saudi Arabia
2. Saudi Arabia 2. India
3. UAE 3. China
4. Taiwan 4. UAE
5. China 5. Taiwan
6. Indonesia 6. Australia
7. South Korea 7. South Korea
8. Egypt 8. Indonesia
9. Australia 9. Turkey
10. Singapore 10. Pakistan

India’s race for arms
The Indian defense budget has increased to $40 billion, compared to a mere $7 billion for the neighboring Pakistani military. “India is claiming to be worried but its weapons purchases far exceed Pakistan’s,” Hoodbhoy asserted.

Meanwhile, the Chinese defense budget stands at roughly $145 billion, nearly four times that of India. In fact, China is second only to the U.S. in triple-digit military spending.

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