Come Budget season, there is a carefully orchestrated exercise from the ministry of finance — that of laying the intellectual framework for breaching financial discipline. See how the CEA, Arvind Subramanian, has put out the possibility of the Centre moving away from the 3.5 per cent fiscal deficit target for the next fiscal that it had laid out at the time of the previous Budget. The same thing was done last year and some balloons were floated on how it was okay to breach the 4.1 per cent fiscal deficit target as long as the money was spent wisely on capital expenditure.

The CEA said in an interview that he wanted to provoke a debate and wondered whether if it is the right fiscal policy in these economic circumstances to continue with those targets. Industry chambers such as CII have been quick to add their muscle to this line of thought — that it is okay to give deficit targets a miss for the sake of growth.

Now, these arguments would carry weight if the Centre was otherwise prudent in expenditure and was meeting its fiscal responsibilities . When there is a problem in an odd year, the markets will be willing to overlook the deviation. But every year a ‘new’ circumstance is touted as the ‘extraordinary’ reason why the deficit target couldn’t be met and why there needs to be elasticity. One year it is the global crisis, the next year it is natural disaster, then a slowdown, followed by a rise in oil prices and after that the burden of a pay commission. There is practically no year when ‘exceptional’ situations don’t operate. It, therefore, behoves our government to plan for these contingencies rather than cite them year after year as an excuse for shortfall in fiscal discipline and rectitude. Perhaps the time has come for rating agencies to issue warnings of a downgrade if government officials and/or chambers continue to flirt with such ideas.

Associate Editor

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