Government has come out and announced its worst fears. Defence spending is expected to almost double, government may have to borrow to pay for salaries and other recurrent expenses, revenues will remain low and development expenditure will shrink.

Finance Minister Ram Sharan Mahat, who has been keeping a pretty tight hold on the purse told the State Affairs Committee he is worried about being able to manage the treasury in the coming years. The security agencies' wish list is long-14 helicopters (nine for the military), three for the police and two for the armed police, in addition to new armaments, recruitment drives and other logistics. Last year the government allotted Rs 10.28 billion for the army, police and armed police combined. It has spent roughly Rs 3 billion over that to meet the security spending after 26 November. The military has already spent Rs 2.1 billion and has a request for Rs 700 million awaiting approval at the Finance Ministry. The Home Ministry, for its part, has spent Rs 908 million over its budgetary allocation. For the next fiscal year (2002/03), the defence and home ministries want a combined increase of Rs 9.85 billion.

These figures are especially worrying in light of the massive slowdown in revenue collection, which is growing by about 4.5 percent, compared with the 19 percent target that had been set for this year. In terms of rupees, this translates into Rs 7 billion less than the roughly Rs 60 billion the government had hoped to collect this year. The numbers include the collection after the imposition of war taxes and duties announced earlier this year. The increased expenses and low revenue collection mean that government will need to begin borrowing heavily to meet spending, even if it were to remain at last year's level. The slowdown in development spending due to the security problem has temporarily eased pressures on the treasury, but the impact of lower spending now will be felt in the future.