You have to make money to spend money.

The government has decided not to borrow Rs 120 billion from the market on 22 February to limit the fiscal deficit to within 5.3% of the GDP as promised. Apparently it has been saving money through a reduction in spending and has decided that it does not need to raise more money. We do not know whether to swallow this statement because the present Finance Minister was responsible for the huge rise in spending in 2008 to win elections in 2009 so it maybe that he is just postponing expenditure to the new financial year due to start on 1 April to avoid a credit downgrade to junk status. It could be a case of April Fool. In 2007-08 total government revenue was Rs 5.4 trillion and spending was Rs 7.1 trillion giving a deficit of Rs 1.7 trillion. The criminal waste of 2008 showed up in 2011-12 when revenue was Rs 7.7 trillion and expenses were Rs 13.2 trillion giving a deficit of Rs 5.2 trillion. The relation in growth and deficit was shown by Mr Vivek Debroy in the ET of 14 February. He wrote that in 2007-08 fiscal deficit was 2.55% of GDP and growth was 9.30%. That was when these fellows thought that they were the cat's whiskers and went round the world proclaiming the promised land was at hand and that the US and China could give up the chase. In 2008-09 deficit was 6.4% and growth 6.07%. This was partly due to the sudden global slowdown. In 2009-10 deficit was 6.48% and growth was 8.40%. This was because of the huge stimulus to the economy because of increased spending and hundreds of billions of black money spent on the elections. In 2010-11 deficit was 4.90% and growth was 8.37%. Growth in the previous year had increased tax collections. In 2011-12 deficit was 5.90% and growth 6.53%. This is when the hangover is beginning to catch up. This year deficit is expected to be 5.3% and growth 5.37%. Mr Debroy makes the point that a low deficit is essential for growth to rise which means that, just as a family or a business cannot spend more than it earns because it will go bankrupt, so a government has to cut its coat according to the cloth available. But just when we were about to heave a sigh of relief we learn that the Food Security Bill which is due to be passed by parliament will cost Rs 2.38 trillion in one year. In the current financial year the government spent Rs 753.66 billion on food subsidies which is 0.74% of the GDP so Rs 2.38 trillion will add 2.3% to the spending and hence to the deficit. This is clearly an invitation to the poor to breed even more because the amount of grain is distributed per member of a family which means that children get the same amount as adults. This may allow parents to eat more or sell off the surplus. No country in the world can feed an infinitely growing population so the deficit will continue to increase. By that time the next elections will be over. But what happens after that?