The ruling United Progressive Alliance (UPA) government’s increasingly common practice of moving big-ticket items of expenditure off its balance sheet is threatening to undermine the objectives of a five-year-old legislation, supported by all political parties, to cap fiscal profligacy. Ironically, when the Fiscal Responsibility and Budget Management Act, or FRBM, was legislated in 2003, it was aimed, among other things, at making government accounting more transparent and getting the current generation to pay its bills.
The legislation was prompted by the thinking that its failure to live within its means would force the government to borrow larger sums of money. And to service interest payments on these, the government would have no choice but to dip into future revenues— money that could have otherwise been used to fund development programmes.
Ironically, despite the legislation, that is just what has happened. In the last four years, the unprecedented spurt in tax revenues has not been able to match the spike in government expenditure—especially on account of the UPA’s decision to absorb the impact of the nearly fourfold increase in international oil prices and not pass it on to the consumer.
To work around the provisions of FRBM, the government has increasingly employed a practice, used by previous regimes, too—though in smaller measure—of moving the accumulating expenditure off-balance-sheet—by consolidating them and issuing bonds that will be redeemable 15-20 years later. However, the problem does not end with issuing bonds.
The manner in which its impact has been neutralized in the government’s account books is turning out be very controversial. “This is where fraud in fisc (fiscal deficit) is taking place (and) decidedly, the burden will fall on future generations,” said Yashwant Sinha, who was the finance minister in the previous National Democratic Alliance government, who successfully piloted the FRBM legislation through Parliament.
Sinha is not the only one to question the consequences of the government’s methods to get around paying for its bills by issuing bonds. The comptroller and auditor general of India, or CAG, an independent watchdog of the government’s accounts, claims the deficit (difference between income and expenditure offset by borrowing) is being understated.
In December, CAG brought out its annual report on the Union government’s finances (for 2006-07), where it showed the deficit to be higher than that projected by the government in its documents such as Budget at a Glance. Both CAG and government documents use the same accounting data to calculate deficits.
The issue is critical because FRBM mandates the government to cap its deficits and CAG’s report, tabled in Parliament on 7 December, said the government had overshot it in 2006-07. Interestingly, on the same day, the last day of the winter session, finance minister P.
http://in.news.yahoo.com/mint/20080224/r_t_mint_bs_budget08/tbs-higher-fuel-bills-don-t-worry-about-a839eca.html
The legislation was prompted by the thinking that its failure to live within its means would force the government to borrow larger sums of money. And to service interest payments on these, the government would have no choice but to dip into future revenues— money that could have otherwise been used to fund development programmes.
Ironically, despite the legislation, that is just what has happened. In the last four years, the unprecedented spurt in tax revenues has not been able to match the spike in government expenditure—especially on account of the UPA’s decision to absorb the impact of the nearly fourfold increase in international oil prices and not pass it on to the consumer.
To work around the provisions of FRBM, the government has increasingly employed a practice, used by previous regimes, too—though in smaller measure—of moving the accumulating expenditure off-balance-sheet—by consolidating them and issuing bonds that will be redeemable 15-20 years later. However, the problem does not end with issuing bonds.
The manner in which its impact has been neutralized in the government’s account books is turning out be very controversial. “This is where fraud in fisc (fiscal deficit) is taking place (and) decidedly, the burden will fall on future generations,” said Yashwant Sinha, who was the finance minister in the previous National Democratic Alliance government, who successfully piloted the FRBM legislation through Parliament.
Sinha is not the only one to question the consequences of the government’s methods to get around paying for its bills by issuing bonds. The comptroller and auditor general of India, or CAG, an independent watchdog of the government’s accounts, claims the deficit (difference between income and expenditure offset by borrowing) is being understated.
In December, CAG brought out its annual report on the Union government’s finances (for 2006-07), where it showed the deficit to be higher than that projected by the government in its documents such as Budget at a Glance. Both CAG and government documents use the same accounting data to calculate deficits.
The issue is critical because FRBM mandates the government to cap its deficits and CAG’s report, tabled in Parliament on 7 December, said the government had overshot it in 2006-07. Interestingly, on the same day, the last day of the winter session, finance minister P.
http://in.news.yahoo.com/mint/20080224/r_t_mint_bs_budget08/tbs-higher-fuel-bills-don-t-worry-about-a839eca.html
