Budget 2019: Do you know, a fourth of India’s Budget goes into interest payment?

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Published: January 25, 2019 3:48:16 PM

The centre's massive interest payment liability of Rs 5.5 to 6 lakh crore a year adversely impacts its developmental programmes as this amount is twice as large as the total budgeted capital expenditure of the government for 2018-19.

Union Budget 2019.The Union government borrows around Rs 6 lakh crore a year.

Union Budget 2019: The Union government spends nearly one fourth of its total budgeted expenditure towards interest payment every year. This huge liability severely impinges on the government’s ability to provide more funds for poverty alleviation and development-oriented programmes. In last year’s budget the government has announced that it would spend Rs 5.75 lakh crore during the current financial year to meet interest payment obligations.

Arun Jaitley had pegged the government’s borrowing for the current financial year at over Rs. 6.24 lakh crore. More than 92% of this amount would be spent on paying interest on the already running loans on the government. However, the government has already borrowed 115% of its total estimated borrowing limit in the first 8 months of the current financial year.

The government’s interest payment liability alone is equal to nearly 40% of its total projected net revenue receipts, which is projected to be over Rs. 14.80 lakh crore for the current financial year. This huge liability leaves very little room for the government to spend on developmental schemes. In last year’s budget, Jaitley had pegged the central government’s capital outlay at Rs 3 lakh crore and its interest payment liability is nearly twice the amount.

It’s a kind of debt trap for the country as it borrows nearly Rs 6 lakh crore every year to meet itsinterest payment obligations. However, some economists believe that this massive interest payment liability is not as bad as it is considered to be.

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Dr Charan Singh, chief executive of Noida-based think tank EGROW foundation told Financial Express Online that the government can breach its fiscal deficit target if there are cogent reasons, adding that India does not have a large external debt component and government’s interest payment goes back into the domestic economy.

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“This huge interest payment outgo goes back into the country’s economic system and supports its growth. In this sense, it is not bad for economy,” says Dr Singh, a former senior economist at International Monetary Fund.

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