As the financial year draws to a close, the finance ministry is going all out to contain the fiscal deficit to its red line level of 4.6 per cent of GDP. Throughout the year it has engaged in window-dressing to lift receipts and curtail expenditure — the latest such move being a directive to banks to transfer their TDS receipts to the exchequer in March itself, that is, by the end of the month, rather than a month later. This will lift the receipts side by about ₹20,000 crore. Indeed, the distortion of statistics has assumed serious proportions. The Centre forced public sector units (PSUs) to cough up a dividend of over ₹40,000 crore this year, against about ₹13,000 crore last year. The pressure on corporates to pay advance tax has increased with every passing year. On the expenditure side, the outgo of ₹2.5 lakh crore towards food, fuel and fertiliser subsidies in 2013-14 may seem like an accurate figure. But almost half of it was used up in meeting ‘arrears’ of the previous year, while this year’s subsidy is bound to be more on account of the reduced rupee value. Therefore, the ‘arrears’ pushed into 2014-15 will be higher. The artificial increase in revenue and understatement of expenditure translates into a lowering of the fiscal deficit for 2013-14 by over ₹1 lakh crore. The real fiscal deficit is, therefore, closer to 5.6 per cent!

This messing around with the Budget numbers must stop. At stake is the credibility of India’s economic statistics, considered more reliable than that of other emerging economies, including China. The markets may for now celebrate a below-5 per cent fiscal deficit and the rating agencies hold back their downgrade, but this will not continue if the figures are exposed as a joke. The way forward is to amend the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, to address transparency to the smallest detail.

As the name of the law suggests, the accent is on ‘responsibility’ rather than ‘transparency’ — on meeting a pre-determined deficit target, no matter how. As a 2001 report on fiscal transparency, a precursor to the FRBM law, pointed out, the Budget should make explicit its assumptions on growth, inflation, savings-investment rate, trade imbalance and projected capital inflows. It’s been a decade since the law came into effect, but there’s little transparency along these lines. The medium-term fiscal deficit document is a welcome addition as is the information on tax revenues forgone, but it ends there. The Budget should spell out its assumptions and the risks. It could indicate a range within which it will contain the deficit — best case scenario, business as usual and worst case scenario — depending on the level of risk, and drop the idea of a red line. This system will take away some of the temptation to fudge. The markets will welcome it.

comment COMMENT NOW