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Financial Mess and Mismanagement

With a rising and burgeoning fiscal deficit, ambitious populist schemes and the political compulsion to ramp up government spending in an election bound year, the government has been desperate to raise funds. Its fiscal deficit has already touch 70% of its annual budget target, though its been just four months into the current financial year. In its urgency to raise funds, the government has tightened tax laws, with the most coercive measures being unleashed even to recover disputed taxes, it has compelled the Reserve Bank to cough up dividend of Rs.50000 crores (an increase of 63% from the previous year), and has indulged in blatant financial jugglery to raise funds by way of disinvestment, which includes the purchase of IDBI Bank by LIC for Rs.13000 crores and the purchase of HPCL by ONGC for Rs.35000 crores, from the government. In its schemes to shore up cash flows, it also delays various tax refunds, unmindful of the hardship caused to the tax payers.

But if the government is so desperate for funds, which it raises from the easiest possible sources in an imprudent manner, like forcing the LIC to buy IDBI Bank by paying it Rs.13000 crores and compelling RBI to pay a hefty dividend of Rs.50000 crores, and shameful coercive recovery of taxes (who can stand up against the might of the tax departments), why does it not resolve its financial crisis by stopping its rampant financial mismanagement of banks and financial institutions and PSUs. If the government were to restrain its own uncontrolled spending, its state of finances will automatically improve.   Merely in the last three years, it has infused Rs.250000 crores in banks by way of additional capital to provide for the huge NPA losses of banks. So why does the government not adopt the most prudent and appropriate method to strengthen its finances ie. stop its political interference and financial mismanagement, so that government firms do not bleed cash and hopefully return profit on the lacs of crores of public funds invested in them. Such a prudent government conduct, will not only resolve the perennial financial problem of the government, but will also obviate the need to inflict coercive tax recovery measures on the hapless tax payers. And similarly, why does the government not unleash such coercive recovery measures on the bank loan defaulters, like it does in the case of disputed taxes, to recover the huge amounts of public money lost, which it is now replenishing, by way of additional capital infusion into banks. That is after all precious public/government money that has been looted and has thus impoverished the exchequer. If the government were to prudently and honestly manage its sizeable funds/investments, which include the likes of PSBs, insurance companies, PSUs, LIC etc., its financial position will cease to be as precarious/desperate as it presently is.

A bank is generally a profit making entity and the government should have been enriched by its sizeable investments in banks and financial institutions. But that has not been so and reflects on the government’s poor financial condition. The recent quarterly loss of almost Rs.5000 crores reported by the SBI and its forecast for a continuation of losses in the coming quarters, is a reminder of such financial mismanagement due to government interference.   

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