Moving Out of an Outdated Tradition

The finance minister has brought down the fiscal deficit to an unprecedentedly low level. Now he must raise his ambition

By Ashok V. Desai  
Saturday, February 4, 2017

For two hours in the year, the finance minister is the master of all he surveys. Television cameras show him all over the country; millions watch and listen to him with rapt attention. That is only the beginning; he is the darling of newswomen through the day, and learned-looking grown-ups spin theses the whole day upon the wisdom he poured in the morning. Interviewers queue up to talk to him; he can kick out those known to ask hard questions, and choose his sycophants.

What makes him such a cynosure? He owes it to our British past masters. Centuries ago, their common men - women did not figure then - denied their money to the monarch unless his government got permission to spend it from their representatives gathered in Parliament. The Chancellor of the King's Exchequer has since then had to tell the British Parliament how much the King - sorry, the Queen - wanted for running the government and how he would raise it for her. By devolution, our finance minister is the chancellor of our President, and has to ask our Parliament's permission to spend. He has never denied it; the members of Parliament have never cut his Budget. They could not care less how much he spends as long as they have more than enough to spend.

But suppose they took their job seriously and decided to look into the figures he presents to them; the Budget speech is then the least relevant to Budgetary control. What is relevant is the documents laid before them; in particular, the 237-page Expenditure Profile. What does it tell?


The government is not supposed to spend without Parliament's permission; so revised estimates must always be less than Budget estimates. Actually, they are Rs 36,300 crore or 1.8 per cent in excess. How did that happen? The government's one-line explanations reveal nothing. The MPs should ask the government, and ensure it does not happen again.

The expenditure Budget asks for permission to spend for a hundred ministries and departments. Some of them are essential; for instance, the Cabinet, the Supreme Court, or the Election Commission. Some are colonies of the Central government such as Andamans and Pondicherry, and Delhi itself. Most of them are leftovers of history; for instance, French enclaves that were taken over. But why should they be owned by the Central government? Why should they have their own administrations? Surely, Pondicherry would be no worse off if it were part of Tamil Nadu. Why do we need a department for empowerment of persons with disabilities, or a ministry of animal husbandry and fisheries, or a ministry of shipping? Why do there have to be separate ministries of women and child development and of youth affairs and sports? Why not a ministry of old men and wheelchairs? Why have separate departments for scientific and industrial research, science and technology, and biotechnology? Or for chemicals, pharmaceuticals and fertilisers. Why do we need a ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy? Why should health research be separated from the ministry of health and family welfare? These were obviously created at some point because of sudden enthusiasm about something or the other. But they do not deserve ministries; putting similar subjects in a single ministry would encourage efficiency and interaction.

Many of the departments should be independent enterprises, so that they would have operational independence. Instances are space technology, pharmaceuticals, fertilisers, steel and textiles. Public enterprises do not need ministers and ministries to control them. They are public limited companies, and should be controlled by their boards of directors; if the government has any view on their management, it should give effect to it through its nominees on the board.

But the biggest potential savings do not lie in closing down ministries and departments, but in redefining the scope of Central government. Under the present regime, the Centre has stopped planning; it has transferred planning to states. And it has delegated social programmes to the states. It continues to finance state expenditure in various ways, and would want to supervise the spending of its funds. But this supervision must not be general; it must be functional. The government must define in advance what its money should achieve, and monitor the outcome. Chidambaram had introduced an outcome budget, but it is moribund today. And infrastructure has to be planned and constructed over many years; the capital budget must cover 10 years forward and backward.

The Central government spends Rs 85 billion on Scheduled Castes and Tribes, under 300 heads. If there are 400 million of them, this comes to Rs 200 per head. Even if the money were given directly to them, it would achieve little; and none of this is given directly. This is a perfect way of maximising red tape and minimising results. The point of spending on Scheduled Castes and Tribes should be to abolish them - to raise their standards to a level that is no different from that of the rest of the population. If money is spent, it must be on their integration into the broader community. That cannot be achieved by spending on them; money should be spent on others for welcoming Scheduled Castes and Tribes in their midst - for instance, on families that take their young men and women as paying guests.

Finally, whether by intention or luck, the finance minister has brought down the fiscal deficit to an unprecedentedly low level. Now he must raise his ambition; he must aim at running an anti-cyclical fiscal policy in the short run, buying back all government debt from banks and financial institutions and creating a broad, competitive market for debt in the medium run, and building up a sovereign wealth fund which would maximise returns on public savings in the long run. Traditionally, governments have been spendthrift consumers and wastrels; the government as a leader of the economy has been only a dream. Somehow this dream has become achievable in India. This is what the finance minister should be working towards. ~

The writer is a senior economist and was chief consultant in the fi nance ministry from 1991 to 1993

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