Union Budget: Centre's Rs 9.4 lakh crore interest payment putting development agenda at backseat

Signifying the burden on the union budget due to the interest payment, a total of Rs 9.4 lakh crore is to be paid in the interest payment alone, which is nearly one fourth of the Union budget which has been estimated at around Rs 39.45 lakh crore.

Hyderabad: The Union Government’s massive interest payment requirements consume nearly a fourth of India’s total Union budget every year, thereby putting extreme pressure on the government’s development agenda. As per the public debt management report, the Union government’s total outstanding liabilities were estimated at over Rs 133 lakh crore at the end of March 2022.

As a result, the government is required to pay a massive amount out of budget every year in interest payment alone which has grown significantly in recent years. According to the budget estimates for the current financial year, the government is required to pay over Rs 9.4 lakh crore in interest payment alone, which is nearly one-fourth of the Union budget which has been estimated at around Rs 39.45 lakh crore.

For example, for the financial year 2020-21 (April-March period), the actual interest payment was around Rs 6.8 lakh crore, which has been estimated to increase to Rs 8.14 lakh crore as per the revised estimate for the financial year 2021-22 -- a growth of nearly 20 percent in one year. This massive increase has been attributed to the Covid-19 global pandemic as the country’s economic activity was severely impacted during the first six months of the first Covid year. This significantly impacted the government’s revenue while simultaneously putting more pressure on account of welfare measures announced in the wake of Covid-19.

However, the second Covid year was no better as the interest payment requirement which, as per the revised estimate, has been pegged at around Rs 8.14 lakh crore for the last fiscal year, and has been estimated to increase to Rs 9.4 lakh crore for the current financial year. This amounts to a growth of 15 percent on top of a massive jump of 20 percent in the preceding year.

This massive interest payment requirement, which is at a historically high-level today, eats up a sizeable chunk of the Union budget every year putting pressure on the government’s developmental agenda and infrastructure development programs.

How interest payment affects development?

Prime Minister Narendra Modi’s government has embarked on a massive infrastructure development plan to revive the economy hit hard by the Covid-19 pandemic and has substantially increased expenditure of capital account. Any increase in capital expenditure where the money is spent on the creation of infrastructure such as roads and highways, airports and seaports, hospitals, schools, and buildings are considered good for the economy as it leads to job creation.

However, this massive infrastructure funding spree witnessed in the last two-three years still trails below the interest outgo every year. For example, the Union government allocated a record Rs 7.5 lakh crore for capital expenditure for the current financial year but it is less than 80 percent of the interest outgo for the same year.

As per the latest official data, the Union government has spent a record Rs 4.47 lakh crore during the first 8 months of the current financial year (April-November 2022), whereas the interest outgo alone accounts for Rs 5.45 lakh crore during the same period, which is 22 percent more than the expenditure on building roads and highways, seaports and airports, among other things.

In other words, the Union government’s entire kitty of corporate tax collection (Rs 7.2 lakh crore) and customs duty collection (Rs 2.13 lakh crore) for the current financial year would be consumed in interest payment alone.