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Created on Sunday, 21 February 2021 16:31
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India is Living Dangerously Beyond its Means
(Edited Image. Courtesy: RBI)
Fiscal Responsibility has proved to be a revolving door for the successive regimes at the Centre. It is a special door from where the economy is unable to either take off to sustainable, double-digit growth or slip into abyss.
Covid-19 pandemic, and the resulting lockdowns, have thus brought fiscal discipline back to square one. The yet-to-stabilize situation has pushed India to the danger zone with estimated fiscal deficit (FD) touching record 9.5% of gross domestic product (GDP) in 2020-21.
The previous peak FD of 8.16% occurred in 2008-09 post global financial meltdown-led fiscal stimulus. This is actual FD computed by CAG and different from what was reported in the budget documents.
The general government debt (Centre & States’ explicit borrowings) has touched 90% of GDP, well above globally acceptable prudent level of 60%. The actual debt might be higher by a few percentage points as India does not have accurate, timely data on all government borrowings raised by different tiers of Government.
The Union Budget for 2021-22, coupled with the report of the 15th Finance Commission (15thFC), offers Modi Government a rare opportunity to start afresh in a challenging milieu. The two documents also serve as trigger for the States to review their fiscal framework. 15thFC has lined up slew of fiscal initiatives for the States.
Read more: Time to Rescue Fiscal Responsibility from Ritualism
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Created on Saturday, 20 July 2019 08:14
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(Edited Image from RBI's Financial Primer - Money Kumar & Monetary Policy)
The Finance Ministry should introspect over fiscal opacity that figured other day in the deliberations between two constitutional bodies.
Three days after the presentation of Union Budget, fifteenth Finance Commission (FFC) Chaired by N.K. Singh met Comptroller & Auditor General of India (CAG) Rajiv Mehrishi along with other CAG officials.
They discussed lack of underlying conceptual framework on fiscal transparency and under-reporting of deficit and debt. Another key issue that figured in talks was “Potential risks of absence of revenue deficit as a target”, according to FFC release.
FFC & CAG also discussed quality of capital expenditure; asset accounting; expenditure management and impact of GST on revenue.
As put by the release, “the issue of fiscal transparency in the fiscal reporting of the Union and State Governments was discussed especially in the light of increasing trend of off-budget and extra-budgetary resource raising by the governments. CAG highlighted the fiscal risks due to non-transparency”.
It adds: “International standards and amended FRBM Act, 2003 prescribes the inclusion of such off-budget resources to be included in the definition of debt. However, its completeness and reliability in the present form has been a concern for the CAG”.
FFC & CAG would again meet soon to carry forward their discussion. Both are bound to raise concerns on fiscal deficiencies in their respective reports in the coming months.
Dr. Rathin Roy, Director and CEO, National Institute of Public Finance and Policy (NIPFP) has already flagged fiscal concerns immediately after the presentation of the budget.
In his column titled 'A silent fiscal crisis?' published by a leading business daily, he started with the observation: “This year’s Budget speech was the first I have seen that, in my memory, has no paragraphs on the fiscal situation which, along with the tax proposals, is at the core of any Budget”.
India’s fiscal issues are also expected to come under scrutiny from outside quarters too. International Monetary Fund (IMF) is expected to take a call on these in the near future. This would happen when it considers annual IMF staff report on India sometime during the next four weeks.
Read more: Make Fiscal Discipline Enforceable & Independently Verifiable
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Created on Wednesday, 06 February 2019 03:31
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(Security dog sniffing Budget Sacks. Image Courtesy: PIB)
“In one village, one person asked another: ‘What is an Interim Budget?’ Another replied: ‘It is a Budget presented by an Interim Government’. Then, the first person asked: ‘What is an Interim Government?’ The next person replied: ‘The Interim Government means that the Government does not know whether it will come back after the next elections or not’.”
BJP veteran P.S. Gadhavi from Kutch cracked this joke in Lok Sabha on 20th February 2009 while lambasting UPA’s interim budget (IB) for 2019-10. He also recalled Arun Jaitley likening IB to ‘Satyam’s balance sheet’.
Would this anecdote turn out to be real jolt for the NDA? It is perhaps this fear of loss at 2019 polls that led Modi Government to throw to wind all constitutional conventions to announce populist schemes.
It is lust for power that compelled Modi Government to offer substantial income tax sops to the middle class in IB for 2019-20 presented on 1st February 2019.
IB turned blind to the fact that India has the world’s highest corporate income tax (CIT) of 48.3 percent. This is inclusive of tax on distributed dividend, explains OECD’s ‘Corporate Tax Statistics Database’ released on 15th January 2019.
Companies are not vote banks. They are only poll financiers. The ones, lapping up electoral bonds or donating through other means, can thus wait. They can now only pray for return of Modi Government to ride on the next wave of crony capitalism.
Read more: Interim Budget Speech is Drop in the Ocean of Pre-poll Oratory
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Created on Wednesday, 20 June 2018 02:57
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(Edited Image. Courtesy: Accenture)
Why Zero-based budgeting (ZBB) has got a new life in the corporate world? Why the Governments across the world largely remain disinterested in retrying ZBB? And why Governments don’t subject colossal tax expenditures/incentives to ZBB? Can re-conceived ZBB be perceived as sustainable growth mantra in the age of unforeseen disruptions?
A lot more such questions are bound to crop up if one delves deep into ZBB - an interest that gets ignited when top multinationals (MNCs) across the world share their ZBB goals & achievements.
Several consultancy giants have given currency to this trend by pitching value-added ZBB strategies to their clients. A few entities such as Deloitte, however, see ZBB enthusiasm waning fast.
According to Deloitte’s first Global Cost Survey Report released a few months back, “ZBB use is expected to decrease globally from 13% to 10%, a real decline of 23%”.
Earlier, in a 2016 document captioned ‘Zero-Based Budgeting: Zero or Hero?’Deloitte stated: “ZBB components and theory may be useful in specific sectors under specific circumstances.37 Although the economic environment has driven renewed interest in ZBB, more practical and less costly budgeting alternatives are available that can meet organizational needs”.
As optimists outnumber & outshine pessimists, one can’t afford to overlook impressive data and studies reeled off by the former group. This is the key to understanding why ZBB works well for some and turns out to be a headache for others.
Read more: Reborn ZBB Can Help Entities Grow Amidst Disruption
