Wednesday, 18 February 2009

Even the rope is gone

A few days ago I posted twice on the Indian budget, ahead of the next year's budget that was presented a couple of days ago. Click here and here for these posts.

I argued that making a massive loss and therefore simply printing more money (officially called debt) was just unsustainable. Little did I realise that the Budget for 2008-09, on which I based my P&L account was stunningly way off the mark.

The Finance Minister's speech was 7500 words long. 7100 of them was blah blah. He patted himself on the back so often, that I am surprised he's still walking straight. In 400 words (I counted ), he threw a bomb.

He said expenditure would actually be 20% more than the budget. And revenues would be 8% lower. So the "loss" would be 437% higher. No problem - he would just print more notes - increase debt in politically correct terms.

And where did he spend all this money. The biggest spending was in fertiliser subsidy where he spent more than 100%. He spent more on food subsidy. He wrote off loans to "farmers" - standard tactics to buy votes in India.

This is after doing a virtual accounting fraud, by directly issuing bonds to oil companies (for petroleum subsidy) and believe it or not, even more bonds to fertiliser companies, and thereby not showing this as expenditure at all . In reality expenditure is over budget by 40%. Even Satyam Computers pales into insignificance in comparison to this accounting sleight of hand.

I am absolutely certain that these "Revised estimates" for 2008-09 are bunkum. When the actuals are totalled many months later, you'll see buried in the fine print, expenditure having overshot by another 20%. Oh sorry - actually that may not happen. Since government operates on a single entry cash accounting system; simply delay payments and push it to next year.

Elections to the parliament are coming in 3 months. If we are sensible, we should demand a law preventing government from borrowing and forcing balancing of budgets. But we know what we'll get - free colour TV, loan waivers, free power to farmers and god knows what more innovations.

The Indian rope trick involved a magician throwing a rope up, which would stand erect and climbing up the rope and disappearing. I think we should revise this trick to no rope, no magician, no nothing, just Pooh !


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