When Narendra Modi talked about the “empty coffers” left behind by the UPA, P Chidambaram, who was in charge of the coffers till 26 May 2014, claimed this was nonsense. He claimed he was leaving Rs 26,510 crore in cash for the Modi administration in contrast to the negative cash balance left behind by the previous NDA government in 2004.
Chidambaram said: “The opening cash balance on June 1, 2004, just after NDA government demitted office, was negative Rs 2,730 crore. On the other hand, the opening cash balance on June 1, 2014, just after UPA demitted office, was Rs 26,510 crore. We do not subscribe to the empty coffers theory but for the sake of argument, we would like to ask who left behind an empty treasury.”
Perhaps, the former finance minister was being too clever by half. He, of all people, should know the difference between leaving a positive “cash balance” and huge unpaid liabilities which will have to be paid by the next government.
A “cash balance” makes no sense if you have unpaid bills. Its like keeping money in the bank while accumulating huge debts on your credit card. The cash balance is thus notional and fictitious.
The government today (30 June) released the fiscal deficit figures for April-May 2014 which show the real state of the exchequer. According to a Reuters report, in just the first two months of this year – April and May, when the UPA was holding the fort – the fiscal deficit soared to 45.6 percent of the whole year’s budgeted figure.
In April and May, the fiscal deficit touched Rs 2,40,837 crore as against Chidambaram’s budgeted figure of Rs 5,28,631 crore budgeted in his interim budget for the whole of 2014-15.
This means his successor Arun Jaitley, who has a drought and an Iraq oil situation to contend with, will have to get by with just Rs 2,87,794 of deficit leeway for the remaining 10 months of this year. If this is not empty coffers, one wonders what is.
If we deduct Chidambaram’s positive “cash balance” of Rs 26,510 crore as on 1 June from the April-May fiscal deficit figure, we would still end up with a fiscal deficit net of the cash balance at Rs 2,14,327 crore. This would be a high 40.5 percent of the whole year’s fiscal deficit target. Last year, the fiscal deficit for the same period was 33.3 percent.
If you spend 40 percent of your year’s deficit target in two months, what are you essentially leaving for the next government beyond empty coffers?
And remember, this fiscal deficit may also be fictitious, since Chidambaram is known to have cooked his books.
According to the data released today (30 June), net tax receipts were at Rs 28,651 crore while expenditures were in the region of Rs 2,80,000 crore – that is, net tax receipts were just a tenth of total government expenses. Even assuming in an election year the government had to spend more than usual in April and May, and tax refunds are high, this is a disastrous gap.
That’s not all. The eight core sector industries reported just 2.3 percent growth in May, against 4.2 percent in 2013. Core industries include coal, power, crude oil, fertiliser, natural gas, steel, cement, and petroleum refining, and they account for 38 percent of the Index of Industrial Production. This suggests that industrial production may continue to head downhill in the initial months of the NDA government as well.
Chidambaran not only leaves “empty coffers” but a decelerating revenue base and a gutted economy.
This level of fiscal deficit means Jaitley has very little leeway in raising expenses for pet schemes without upsetting the rating agencies. He will have to drastically up the revenues from asset sales to increase capital spending and revive the economy.