ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fiscal Responsibility and Budget Management Bill

India's fiscal scenario at the moment is about as bad as it was in 1991-92, the beginning of the economic reforms process. For a variety of reasons, many of them in the realm of political economy, the government has been unable to reduce its expenditures and increase revenues. A fiscal responsibility bill, of the kind being discussed currently, is meant to offer a credible commitment that the government is serious about fiscal consolidation. By tying its own hands the government signals that it is serious about reducing deficits. While one may disagree with the details of the bill, the broad overall thrust and the philosophy underlying it deserve to be welcomed. Unfortunately, as this note is being written, the government is seen to be completely diluting the provisions of the bill so as to render it completely ineffective.

Small Savings and Market Mythology

The report of the Reddy Committee advocates market-determined interest rates on small savings, which it says are "high cost borrowings" for the government. In recommending reduction of interest rates on such schemes, the committee has overlooked the nub of the problem, namely, the government's fiscal profligacy gobbling up huge resources. Besides, fluctuating yields cause uncertainty for the small investor and can adversely affect growth.

Withering Away of Canons of Financial Propriety

It is a matter for concern that in Maharashtra, a state which was once considered among the best governed in the country with sound financial management, serious questions are being raised whether a state of financial emergency needs to be declared under Article 360 of the Constitution which would be the first instance of its kind after independence. Why has the situation come to this pass and what needs to be done to set it right?

Finance Commissions in a Cul-de-sac

The reports of successive finance commissions make it clear that the institution of the finance commission is progressively getting trapped in a cul-de-sac. The reports have become a ritual and for the most part have hardly anything new to contribute though the fiscal position of the states and the centre has deteriorated sharply over time. The elaborate quinquennial exercise, lasting over three years on each occasion and involving intensive discussion with all the state governments and central ministries, academics, representatives of trade and industry and other knowledgeable persons, has hardly thrown up any new idea. The successive commissions have instead merely tinkered with the percentages of horizontal distribution among the states along with effecting marginal increases in central devolution.
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