Do big fiscal numbers mean better reforms? Let's see what they say about cases involving finances of our nation
Since 1991, except in few cases, both National & State governments have resorted to extravagant financial proposals with arguably less deliberation and, as a result, the state had to encounter huge and unimaginable ramifications on both development and welfare fronts. The key elements of any budget are ways of spending money optimally, effectively and efficiently and means of generating revenue. From misplaced priorities-to-distorted targets, overlooking facts & problems-to-resorting to quick fixes to breakages (which wouldn’t have popped-up, in the first place, with a guided approach) and finally from being grossly optimistic-to-getting it heavy under the belt, the fin-mins seemed to have aced the art of convincing people that big numbers are a real wonder and development is just around the corner while putting a huge dent on the over-all economic system.
A research report from Economic and Political Weekly Magazine highlights the case of budgets from 1991-2014 where-in the said period saw 18 regular budgets and 6 interim budgets. The report is based on key indicators such as revenue receipts, total receipts, borrowings and other liabilities, plan & non-plan expenditure, total expenditure, revenue deficit and fiscal deficit to assess the deviations of Revised Estimates (RE)/Actual Estimates (AE) over Budget Estimates (BE).
The above two tables indicate that fiscal deviations are very high while fiscal forecasts have been absolutely poor, particularly during the interim budgets. Even the mandatory guideline of sticking to FRBM limit i.e. the fiscal deficit should NOT be greater than 3.2% of GDP took a back seat which is more accurate in interim budgets.
This analysis shows that there is a general tendency in both interim and non-interim budgets to overestimate revenues and underestimate expenditure, as a result, the budget outcomes in terms of RE and AE deviate in a manner that results in higher revenue and fiscal deficits. This tendency is particularly pronounced in interim budgets. While the BJP-led NDA – II proposed its interim budget on Feb 1st 2019, the exact figures aren’t available yet. The fact that those projections and forecasts would, in no way, be any better than previous interim budgets, and, could only become much worse is an indispensable one.
If you think our nation is the only one having this problem, be amazed, this is a common problem across various economies, thanks to politicians and political systems across the world who/which care only about votes and winning even at the cost of state and people. Irrespective of various political realities, some major, growing and well-performing economies realized the importance of keeping their political temptations aside while charting out their finances in a proper, guided and in a more mature manner through standard scientific & economic methods. The means to achieve this is to conceptualize and establish “independent fiscal council” at national or state level.
What is a National Fiscal Council (NFC)?
NFC is basically a non-partisan financial watchdog which looks over the government’s approach towards utilizing public money or taxpayers’ money.
NFC is entrusted with
providing accurate fiscal & budget forecasts,
the nature of government’s course of action in present and future keeping macroeconomic activity and other fiscal parameters in mind,
the approach the government should design for effective public debt management, and
Finally ensure that a sustainable financial policy is prepared both at national and state level.
NFCs help the public, research scholars and eminent policymakers across the industry to develop deeper insights of the government budgets. However, one must be clear about the fact that NFCs neither have any sort of authority nor any ultimate-say in the finances of state nor do the corresponding governments bind themselves with NFCs propositions. It is the prerogative of the corresponding governments to uphold or discard the recommendations of its NFC.
The discussion so far –
In 2017, the NK Singh committee on FRBM (Fiscal Responsibility and Budget Management) had recommended setting-up an independent fiscal council to keep tabs on public debt. This idea has been fully endorsed by IMF (International Monetary Fund) in October the same year. However, the government doesn’t see any urgency highlighting its apathy towards structural and sustainable reforms.
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