Five Years Of Bad Economics

Five years of bad economics Balbir Punj The UPA Government’s pathetic financial management over the last five years stands exposed as the Centre is now forced to raid the market for Rs 2.4 lakh crore of funds in the next six months. This comes at a time when the same Government stands accused of thrice providing stimulus programmes to flush the market with liquidity so that the industry could have access to funds to stay afloat in the backdrop of the present economic downturn. So essentially the Government has been pushing funds into the market with one hand and sucking out the same with the other. A classic case of your right hand not knowing what your left hand is up to. It is apparent that the Finance Minister was bluffing to Parliament and to the people of India when he claimed financial prudence in the last Budget speech. In every budget since 2005, the Finance Ministry has been quoting figures to show that the Government is flushed with revenues on the back of a ‘booming’ economy. But within just eight months of the boom turning bust, the Government finds its treasury so drained that it has to go the market to borrow as much as 2.4 lakh crore rupees! In fact, the incoming Government at the Centre has already been put on notice by the outgoing one: Expect an empty treasury with many obligations to fulfil. The commercial banks are squirming because they know that the RBI will squeeze them dry to fill the Government coffers. This in turn will deprive them of the headroom to extend affordable credit to the industry, forcing the latter to bear the cost of the heavy Government borrowing. And this could shatter the whole economic recovery programme as demand would further contract. That all of this is happening when the term of the Government is nearing its end and there is no chance to grill the UPA on the country’s financial situation, stinks to high heavy. This amounts to gross malpractice. In fact, it is this freedom from having to be accountable to Parliament that has enabled the Government to cover up its profligacy through huge borrowings. Or may be the Congress knows that it is not going to return to power, and therefore, the next Government be damned even before it moves into office. More evidence of such profligacy and mismanagement on the part of the Government has surfaced in the form of a recent report of the Comptroller and Auditor-General on the Union Accounts. The 12th Finance Commission in its report in November 2004 had specified that eight different parameters be included in the Government’s annual financial statements. Of these eight there are crucial items like accretion to or erosion in

financial assets held by the Government, implications of subsidies, proportion of salaries in various Government schemes, implications of major policy decisions on the country’s finances, especially on future cash flows, etc. The CAG report says: “These important statements have not been included in the Union Finance Accounts by the Government even after four years of the Commission’s report despite the matter being taken up by the office of the Comptroller and Auditor-General with the Controller General of Accounts in May 2007 and the Secretary, Department of Expenditure, Ministry of Finance in October 2008.” May be the Government was afraid that the cat would be out of the bag in case such details were given to the public. Little is known outside Government circles about the huge monetary allocations made for various schemes and whether the money is really being spent on the welfare projects, and whether there are tenable results. The CAG report refers to the central plan assistance of Rs 51,259 crore to various authorities for the implementation of centrally sponsored schemes. Much of the money remains unspent. “The aggregate amount of the unspent balances in the accounts is not readily ascertainable” reports the CAG. “The Government expenditure as reflected in the accounts to that extent is, therefore overstated,” it adds. That is not the only sin the Congress-led UPA has committed. The Congress’s responsibility in financial matters in the UPA coalition was doubly large as the Finance Ministry had been under the party’s big players throughout the last five years. Yet, the CAG has found that there was no transparency in the way expenditure was classified. In 2007-08 as much as Rs 20,273 crore was classified under ‘minor heads’, whereas it should have been under major heads. That amount constituted more than 50 per cent of the total expenditure recorded under major heads. This means that there was a substantial diversion of funds from major expenditure in sectors like power, housing, rural development, agricultural financial institutions, etc. Besides, many important expenditures like Indira Awas Yojana (Rs 3885 crore), North-east region expenditure (Rs 3152 crore), and many others were pushed into the category of ‘other expenditure’, thereby denying the public its right to know on what such large sums of money were being spent on. Interestingly, the subsidy for Haj pilgrimage, a hefty Rs 514 crore, was also hidden from scrutiny by showing it as a part of ‘other expenditure’. The CAG has harshly criticised such practices as indicating “a high degree of opaqueness in accounts”. All this comes on the back of the bungling in economic policy that first saw a steep rise in inflation, and then a steeper fall in demand leading to five lakh people losing their livelihood. The job loss figure is expected to mount to two million by the middle of this year. That there is not even a modicum of business confidence in the market is evident from the reluctance of banks to lend despite sufficient prodding by the RBI at the

insistence

of

the

Government.

The magnitude of lack of discipline in the Finance Ministry can be gauged from the fact that it is unable to secure compliance for its orders from other Ministries. Also, the fact that large amounts of funds of various regulatory bodies are lying outside the Public Account clearly points to the honey pot that some are making by flouting Government orders. But what can one expect from a weak Government under a weak Prime Minister, who has to run to 10, Janpath for clearance before taking any decision?