We know already, why bore us with details?

The annual circus, the Budget, is to be held on 29 February so every self-appointed pundit is giving his opinion on what the Finance Minister should do. But we, the people, already know what it will contain, don't we? Taxes will be raised on services, alcohol and cigarettes, for the hallowed purpose of helping the poor, more cess, which are taxes on taxes, will be added to fund social schemes and more handouts for the rural poor will be announced. It would be a bore except that prices will rise and we will be left poorer at the end. If the revenue raised from taxes is insufficient the government borrows from the market by selling bonds through the Reserve Bank. This adds to the fiscal deficit and the debt to GDP ratio. High fiscal deficit results in high inflation, which hurts the poor, so the FM wants to reduce it to 3.5% of GDP. That will not be easy because 2 failed monsoons have resulted in a fall in rural demand, rise in retail inflation from 3.69% in July to 5.69% in January, and a fall in investment. Our total debt is Rs 65 trillion, which means that the government has to borrow to pay interest on previous debt. So, we are already in a debt trap, which will increase by another few trillions because of the Seventh Pay Commission for civil servants and the One Rank One Pension for the armed forces. If the GDP is growing fast tax collections also increase but although the real GDP grew 7.6% this year, up from 5.1% in 2012, growth of the nominal GDP, which is real GDP plus inflation, has fallen from 13.1% in 2012 to 8.1% this year. That is because the present governor of the RBI has succeeded in bringing down retail inflation from 11.17% in 2012 to 5.69% today. Fall in nominal GDP has raised the debt to GDP ratio from 57% to 67% in 3 years. There are some who want the government to stimulate growth by increasing spending, by ignoring rising deficit. This is precisely what the Congress did, for which we are suffering till today. The government can increase spending only by borrowing more from the market but this is becoming difficult. At a recent auction of treasury bills the RBI rejected all bids because they were demanding yields at 8.63-8.88%, compared to 8.3-8.55% at previous auctions. Ten year bond yields rose from 7.77% to 7.82%. In September the RBI reduced interest rate by a hefty 50 basis points to 6.75% so that banks will charge less when they lend to customers or businesses. But why should banks bother to get less interest at higher risk when they can earn higher interest from sovereign bonds, which are totally risk free? Foreign investors are selling out on Indian bonds because they fear a rating downgrade. No wonder households are less optimistic about the future. Whoever gains, we will be worse off. Just a big yawn.