Fiscal Profligacy – Is it a punishable act?

The fiscal deficit in India is a growing monster that can gobble up our peace and put our national security at serious risk. There is a national debate on this. There are men on the fringes including many workers who have no clue about it. It nevertheless affects their life. And when it gets out of hand there will be anarchy on the streets. So its seriousness has to be understood because it will impact the future of your family.

The fiscal deficit including the Center and the states is pegged at about 10.3 percent of GDP and is perhaps one of the highest in the world. With government loosening its purse strings on all kinds of social stimulus, subsidy and unemployment benefits, it will be borrowing continuously beyond its means to sustain the momentum and thus increase interest burdens. With the economy under serious recessionary pressures and the monsoon playing havoc, overall production, employment and consumption will dramatically decline and the revenue earning capacity of the government will wean causing untold miseries to the unsuspecting public at large. In these difficult times, spending pressures will become inevitable and therefore likely to become a permanent feature of our budget. This is a real danger. Prudent financial management is as important for a national government as it is for every individual.

The recent budget of the new government was expected to give us a general guidance of its ability to bridge the gap between dwindling revenues and ballooning expenditure.  It was expected to provide us a clear picture as to how the government was discharging its fiscal responsibility and how the much needed reform process is likely to unfold not only to fill the coffers of the government but to reduce the government’s role in business. Unfortunately the mandarins are playing their cards close to their chest with the usual tricks of hide and seek verbose.

There appears to be fear, uncertainty and doubt in the minds of people in the government about being transparent and accountable for the vast proportion of the resources that they command. Take a look at the Fiscal Responsibility and Budget Management Act of 2003, with only 13 sections. This is an Act to “ensure inter-generational equity in fiscal management and macro-economic stability”, but fails to address important matters that are integral to the intent of the Act.

Fear is manifested in Sections 10 and 11 dealing with protection of action taken in good faith and barring the courts from questioning the legality of actions taken under the Act. Now the government is seeking amendment to this very Act that was trying to bring some semblance of accountability and responsibility because it has failed to contain the fiscal deficit as set out in the FRBM Act. If you can’t score the goals, change the goal post.

Compare this with the South African Public Finance Management Act . This has 95 sections with far-reaching provisions that even defines “fruitless and wasteful expenditure” as

” expenditure that was made in vain and would have been avoided had reasonable care been exercised;”

There are criminal punishments for fruitless and wasteful expenditure under the provisions of the South African Laws. South Africa is a new democracy and we in India brag about being a democratic nation. But what is sauce for the goose is not sauce for the gander.

Read all these with the recent submissions of the Comptroller & Audit General of India’s candid audit reports as to how government undertakings fudge their numbers (Report 22 of 2009-10) . As many as 53 government companies have failed to publish their annual accounts, some for several years. There are ministries associated with each of these companies. Are the directors or the ministers brought to book for squandering public money?

What is really our fiscal deficit, no one has a clue about it. My article on this written about two years ago is still begging this question – What is our real fiscal deficit? I, for one am sure, will never get an answer in my lifetime.


3 thoughts on “Fiscal Profligacy – Is it a punishable act?

  1. Fiscal Deficit is unfortunately an intellectual debate. In India the vast majority lives by the day. The uber rich are used to paying for the government’s social agenda (playing Robin Hood) and do so now without a murmur. Financial profligacy that the government is indulging in will probably affect all of us in the future, which is anyway a distant dream, so why bother now?

    Clearly the government is gambling. While they have clearly stated that their investments in infrastructure will not crowd out private players, they have no scheme to plug leakages and delays in implementation. Therefore it is more of the same, except that it is a lot more money. So the fat cats who have always relied on government largesse will be licking their chops and the common man will be more surely ground to the dust. In a few years from now, with no more ability to tolerate day to day living, there will be a revolution.

    We are a patient people and God-fearing. A large number of us are also not ambitious (low education levels have ensured that we are good followers with no real personal agenda. Karma plays a big part in acceptance of one’s lot.

    So beyond the questioning of intellectuals like you, who is there to test the government policies and its profligacy and foolhardiness – RBI, the World Bank, the US??? Even the media is only reporting and not analysing? Who is going to explain the deleterious effects of a runaway deficit to the common man and why they should be more concerned?

  2. Excellent article Ranga … I think many Western countries are experiencing the same extravagance.

    Recent upturn in markets have given rise to some belief that “it is all working”. Maybe. Maybe not. At best, this is a non sequitor.

    As Oscar Wilde says “A thing is not necessarily true because a man dies for it.”

    Just because there are some “green shoots” does not mean that the policies and actions were right or the cause of the result.

    I have written a corresponding article in the Australian context, that features your good self !

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