Forget CAG; Mr Govt, please tell us where Rs 19 lakh crore went

After the failed spectrum auction, the government is turning to the Comptroller and Auditor General (CAG) and asking him where is the Rs 1,76,000 crore that the latter claimed were presumptive losses due to the non-auction of 2G spectrum in 2008?

The government is questioning the CAG on how the figures were arrived at rather than turning inwards and wondering where everything is going wrong for it. In fact, the honest Indian taxpayer should turn to the government and ask where the Rs 19 lakh crore that the government has borrowed from the market in the 2008-09 to 2012-13 period has gone. The government resorted to fiscal stimulus to pump-prime an economy that was feeling the heat of a credit bubble burst in 2007-08.

The pump priming has not worked, as seen from the fall in GDP growth rates despite the rise in the fiscal deficit. Table 1 gives the borrowings, fiscal deficit ratio and GDP growth for the 2007-08 to 2012-13 period.

The stark difference between 2007-08 and 2012-13 is there for everyone to see. In 2007-08, the net market borrowing was Rs 1,30,000 crore for financing a fiscal deficit of 2.5 percent of GDP and GDP growth for that year was 9.3 percent.

In 2012-13, net market borrowing is expected at Rs 5,13,000 crore to finance a fiscal deficit of 5.3 percent of GDP and GDP growth is expected at 5.8 percent.

The government has a lot to answer for the money it has spent pump priming the economy, especially as the pump priming has actually resulted in GDP growth falling by 3.5 percent from levels seen in 2007-08.

The money the government has spent has definitely not gone for productive purposes. Around half of the money the government has borrowed since 2008-09 has gone for paying interest on debt. The other half of the money the government has borrowed should have helped improve economic growth. The fact that GDP growth has come off sharply since 2007-08 has placed a question mark on whom the fiscal pump priming has benefited.

The answer is clearly the businessmen, politician and bureaucrat nexus, which has seen its wealth grow manifold over the last five years. Most of the investments of corrupt India are in land and property, the prices of which have gone up several times since 2008-09.

Ironically, land and property prices have gone up at a time when economic growth is trending down and when capital markets are down. Sensex and Nifty are down over the last five years and the rise in property prices is definitely not due to the general wealth effect.

The failure of the 2G spectrum auction is not due to CAG; it is due to the finances of telecom companies. Telecom companies are reeling under debt incurred in 3G auctions, where they paid Rs 68,000 crore in 2012. Hence incurring more debt for spectrum was not feasible. Telecom companies are answerable to lenders and shareholders and business loss is written off by stakeholders.

The government has incurred heavy debt for pump priming the economy and the results are not showing. The government is answerable to its people who are its stakeholders. The people cannot write off the country as they live in the country. The government, instead of blaming its own agency for an auction failure, should set about answering the people of the country where their money is going.

Arjun Parthasarathy is the Editor of www.investorsareidiots.com , a web site for investors.