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LATEST NEWS UPDATES | Why credibility of India's fiscal math is under strain -Nikita Kwatra

Why credibility of India's fiscal math is under strain -Nikita Kwatra

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published Published on Dec 22, 2018   modified Modified on Dec 22, 2018
-Livemint.com

Unless the convoluted arithmetic behind fiscal deficit gets as much attention as headline fiscal deficit number, creative accounting practices will go on

Mumbai:
The Narendra Modi-led National Democratic Alliance (NDA) government has been lauded for its ability to rein in the headline fiscal deficit over the past few years, which has arguably helped tame inflation. However, with reverses in key assembly elections earlier this month and Lok Sabha elections to be held in just a few months, the urge to splurge has never been as intense as it is today.

As a Plain Facts column had pointed out a few months ago, India has witnessed fiscal slippages in seven of the past 11 elections.

What is more worrying is the growing attempts at window-dressing, which could strain the credibility of India’s fiscal math and impose a heavy burden on future generations and future governments.

This year, the government is contemplating not paying for a part of fuel subsidies to avoid making the fiscal deficit number look bad, Mint reported on Monday. This comes on top of a big unpaid food subsidy bill, owed to the Food Corporation of India (FCI), which keeps getting deferred every year.

The practice of “rolling over” subsidy payments to the FCI was not started by this government. However, the problem has become worse under this government, as a December 2017 report from the Comptroller and Auditor General (CAG) has abundantly made clear.

According to another CAG report, the government also owed about ?25,000 crore to states as of 2015-16, as the Centre’s devolution to the states out of the government’s gross collection of taxes and duties, as per 14th Finance Commission guidelines, fell short by that much during the year.

That’s not all. The reliance on extra-budgetary resources (EBR)—such as funds of state-owned enterprises—to fund ambitious programmes of the government could add to fiscal risks.

For instance, 61.4% of all capital expenditure outlined in the 2018-19 budget is slated to be financed through EBR, up from 54% in 2016-17.

Similarly, 84% of the announced spending on agriculture and rural livelihoods is slated to be financed outside the budget, the fine print shows.

If we take into account such excesses, India’s fiscal consolidation begins to appear far less impressive than what the headline numbers suggest.

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Livemint.com, 19 December, 2018, https://www.livemint.com/Politics/nz8Co2gQzfL4dLpt85s8nN/Why-credibility-of-Indias-fiscal-math-is-under-strain.html?fbclid=IwAR3iZb6UwW9xlBq6HjFt3wHOkvIwbMCvLvV7pq-YfK


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