(I) Interest Payment Liability :

Every year Budget is presented by the Hon'ble Minister of Finance on 28th February of every year. The Budget gives figures of Revenue receipts, expenditure and amounts of plan allocations and Finance Bill includes changes in Direct Taxes, Excise and Custom Acts. Every budget enumerates achievements during the year and gives promises to be fulfilled during the coming year.

The main source of Union Tax Revenues are custom duties, Union excise duties, Corporate and Income-Taxes. Non-tax revenues largely comprise interest receipts including paid by Railways and Tele-communications, dividend and profits. The main heads of revenue in States are taxes and duties received by the respective State Governments, share of taxes levied by the Union, grants and income received from the property. Property, Octroi and Terminal taxes are mainstay of local finance.

Every government is expected to meet their day to day expenses and save certain percentage of revenue receipts for Capital works. The Central Government is not able to meet its non-plan expenditure which consist of :

1. Interest Payment
2. Defence
3. Pay
4. Pension
5. Subsidies
6. Grants

And borrowed monies to meet non-plan expenditure and plan expenditure. The Central Government has so far borrowed so much that interest payment per year, which was Rs.21,471 crores for year 1990-1991 has increased to Rs.1,22,433 crores (estimated) for year 2002-2003.

The plan expenditure is entirely from borrowed funds and non-plan expenditure is estimated of Rs.2,96,809 crores for the year 2002-2003. The Government is not able to meet its day to day expenditure from revenue receipts from years 1990-91 and there was revenue deficit of Rs.95,377 crore to meet above six non-plan expenditure in year 2002-2003 (Estimated).

The following are the interest payment liability for respective years.

The above figures clearly show that there was no discipline in financial borrowing, so that interest payment liability which was Rs.21,471 in the year 1990-91, is estimated to go up to Rs.1,22,433 crores in year 2002-2003.

Let us examine how the three Finance Ministers had dealt with interest payment liability :

Speech by Shri Manmohan Singh in 1991-92 :

1991-92 year was difficult year, when the Hon'ble Finance Minister, Shri Manmohan Singh, presented the budget, when India had hardly three months foreign exchange.

Shri Manmohan Singh, Minister of Finance, in his budget speech of 1991-92, has mentioned in para 28 and 30.

"28. The increasing levels of non-plan expenditure, financed through borrowing, have led to an exponential increase in interest payment by the Government. The revised estimates for interest payment during 1990-91, at Rs.21,850 crores, accounted for as much as 38% of the net revenue receipts of the Central Government interest payment during 1991-92, estimated at Rs.27,450 crores, constitutes 42% of the net revenue receipts of the Central Government at existing rate of taxation. If the present trends continue without any correction, then interest payment could well account for more than 50% of the net revenue receipts of the Central Government by 1994-95. These magnitudes and proportions only serve to highlight the gravity of the situation and the acute need for a substantial adjustment in non-plan expenditure over the next three years."

"30. The single largest component of non-plan expenditure is interest payments. Even if there is a drastic reduction in Government borrowings during this year, interest payment would still be in the range of Rs.35,000 crores in the next financial year. The exponential increase in interest payment can be brought under some measure of control by 1994-95, only through a strict discipline of Government borrowing for a period of three years."

1992-93 Speech :

Shri Manmohan Singh in his budget speech of 1992-93, has observed with regard to interest payment in para 40 of his speech :

"40. Interest charges are the largest single item of non-Plan-Estimates and account for Rs.32,000 crores in the Budget-Estimates for 1992-93. This represents an increase of Rs.4,750 crores over the revised Estimates for 1991-92, which is larger than the increase in total non-plan expenditure of Rs.4,405 crores. This means that in 1992-93 all other items of non-plan expenditure taken together are actually lower than in the current year. Hon'ble Members will appreciate that interest charges are a committed expenditure reflection of cumulative effect of past deficits. This item can be controlled only by reducing the reliance on borrowed funds, and intend to do this by reducing the fiscal deficit for 1992-93. However, the benefit of this action will be felt only by Finance Ministers presenting the Budget in future. I venture to think that my successors as Finance Minister will be able to sleep far more peacefully than has been my lot this far."

1993-94 Speech :

The same Finance Minister, in his budget speech of 1993-94, in para 47, says :

"47. Turning to non-plan expenditure, I would like to draw the attention of the House to the tremendous burden of interest payments. The provision for 1993-94 is Rs.38,000 crores, compared with Rs.32,500 crores in the current year. The high interest burden is due to the rising volume of Govt. debt, which itself reflects the large financial deficits incurred year after year. However, with the reduction in the fiscal deficit and hence in the Government borrowings, the growth of this item is expected to decrease sharply by 1995-96".

1994-95 Speech :

Shri Manmohan Singh, Minister of Finance, in his Budget-speech in 1994-95, in para 49, observed regarding interest payments :

"49. Total non-plan expenditure, next year, is placed at Rs.1,05,117 crores, compared to Rs.97,846 crores in the revised estimates of current year. I have to draw the attention of the Honourable Members to a major factor, which has been contributing to the sizeable increasing in non-plan expenditure year after year and this is the interest burden. The provision for interest payments next year is placed at Rs.46,000 crores. This is an increase of Rs.8,000 crores over the current year's budget estimates whereas the increase in total non-plan expenditure is Rs.15,045 crores. Honourable Members will appreciate that the major part of the interest burden is a legacy from the past and it continues to grow because of the continued high level of Govt. borrowings. Interest payments can be reduced only if we can implement a programme of phased reduction in the Govt.'s total borrowings requirements or fiscal deficit. This can become a reality only if our tax system becomes more buoyant, or public enterprises generate more internal resources and we reduce expenditure on subsidies. A bold programme for disinvestments of Govt. equity in public enterprises and earmarking a part of the sale proceeds purely for debt reduction would also be of great help."

Shri Manmohan Singh was very much conscious and sensitive with regard to borrowings and continuous increase of interest payment liability and so in every budget speech he had mentioned regarding the liability except budget speech of 1995. The Congress Party was in power, and he could have enforced steps, but interest payment liability increased from Rs.21,472 to Rs.52,000 crores.

Shri P.Chidambaram 1996-97 Speech :

Shri P. Chidambaram, Minister of Finance, had presented budget of 1996-97 and he mentioned in his budget speech that there is an increase of Rs.8,000 crores in interest payment and provision is made for Rs.60,000 crores. There was no discussion regarding seriousness with respect to the payment of interest liability, which was estimated at Rs.60,000 crores, for the year 1996-97. Shri Chidambaram had opportunity to present budget for year 1997-98, and interest payment liability had increased to Rs.68,800 crores.

Shri Yashwant Sinha :

Shri Yashwant Sinha, Minister of Finance, had an opportunity to present five budgets for the years 1998-1999, 1999-2000, 2000-2001, 2001-2002 and 2002-2003. For the year 1998-99, the interest payment liability was Rs.77,248 crores. Shri Sinha has also presented budget for the year 1999-2000, in which, he had mentioned that interest payment liability was to exceed by Rs.10,752 crores, which was for the estimated year 1998-99, which may be about Rs.88,000 crores. Shri Sinha also presented budget for the year 2000-2001, in which he estimated liability of Rs.1,01,266 crores. Before the budget day, Shri Sinha, Minister of Finance, had given a warning, stating that the budget for the year 2000-2001, is to be a hard budget. The tax-payer of India was ready to accept the burden of tax; but the Hon'ble Minister of Finance, missed the opportunity to reduce the interest payment liability and to delete the exemptions in the Income-tax Act. On the contrary, rebate of Rs.10,000 available to senior citizen under Section 88B of the Income-Tax Act was raised to Rs.15,000 for the assessment year 2001-2002 and an additional rebate in tax was given under Section 88C to woman assessee, below the age of 65 years, who is entitled to claim rebate of Income-Tax for Rs.5,000 for the assessment year 2001-2002, and subsequent years.

It is unfortunate that none of the three Finance Ministers attempted to reduce the burden of interest payment liability.

Dr. Chelliah submitted his report in the year 1992, and had suggested to delete the number of deductions and to reduce the rate of taxation. The Government had implemented the second part but did not attempt to delete the exemptions suggested by Dr. Chelliah's report. On the contrary, a number of additional deductions and exemptions were granted during the period of last twelve years.

The estimated liability of interest payment for the year 2002-2003 is Rs.1,22,433 crores. The question which arises in the minds of the Tax Payers is, Was it not possible for the three Finance Ministers to restrict the interest payment liability ? Is it impossible to restrict the interest payment liability ? Ultimately, we will have to think what are the steps to be taken to reduce the interest liability. If the interest payment liability is reduced or restricted, it can be utilized for capital projects and capital works, which can improve the lives of the ordinary persons and the Nation can also achieve the goal, enshrined in the Preamble of the Constitution of India.

Unfortunately, recommendations in the report of Dr.Chelliah were not implemented by not deleting exemptions, deductions which has resulted into a debt-trap for India in coming years. The next chapter deals with details of borrowing interest payment liability debts and steps to be taken to reduce interest payment liability.