The National Democratic Alliance government has been careful so far about fiscal responsibility. In spite of some slippage in the last Union Budget, it has reaffirmed throughout its tenure its commitment to the path of fiscal consolidation. This is an important achievement of the government and it should not allow populist or electoral pressures in its final months to tarnish that record. Given the continuing necessity to ensure that private investment recovers in India in order to ensure a broad and sustainable foundation for high growth, fiscal responsibility is a must so that the public sector’s borrowing does not crowd out other, more productive, destinations of capital. However, it is better to clearly announce fiscal slippage than to conceal it behind sleight-of-hand and off-Budget items. The Comptroller and Auditor General, in a report tabled in Parliament earlier this month, accused the government of shifting expenses that were earlier part of the Budget process to other, off-Budget items including the borrowing of public sector enterprises. For example, support for state-run airline Air India was not being carried out through budgetary support as previously but through dipping into the Small Savings Fund. It should be clear that any attempts to massage the headline fiscal deficit number will eventually be seen through. The credibility of India’s fiscal arithmetic is more important than appearing to meet a fiscal consolidation target that is actually being missed. The Budget numbers should not imply fiscal distortions, but should present a clear and transparent picture of the real state of affairs.
It is also important that the tradition that an interim Budget presented before an election not introduce any substantive changes, but be a simple vote-on-account, be respected. The assent of a lame-duck Parliament shortly before it is dissolved for a policy change would not satisfy constitutional propriety. That is why previous governments have all largely avoided tying the hands of their successors. Even if the government is confident of re-election, it should postpone any changes that require the assent of Parliament to after the election, when all concerned can be sure that it will be around to see through the changes. In the interim Budget before the 2014 elections, for example, the fiscal consolidation goal was strictly adhered to. Before the 2009 elections, the then finance minister refrained from any new announcements in his speech — though a farm loan waiver had previously been announced. Before the 2004 elections, the interim Budget did contain eight proposals for reducing indirect taxes; these could be done through notifications, so no parliamentary vote was required. Apart from that, some procedures were simplified, and no new programmes involving spending were announced, although the coverage of existing programmes was widened.
This government should also stick to this bipartisan consensus. The correct place to announce spending plans if it is re-elected is not the Budget but in its election manifesto. The government has every right to promise electorally beneficial programmes — but it must do so in the correct forum, and receive the assent of the people before it seeks to draw on the Consolidated Fund of India.