Fiscal Policy and National Balance Sheet
January 7, 2019
Fiscal Policy Vs National Balance Sheet
This refers to
Ajay Shukla’s report “IAF holds back Rs20,000 crore from HAL, as foreign
vendors get paid” (Business Standard, January 7). If HAL has borrowed money
from bank/s to pay salaries to its employees when GOI owes Rs20,000 crores to
the company, there is something fundamentally wrong in GOI’s resources
management. It is time, an expert committee comprising professionals with
expertise in international accounting practices as members supported by representatives
of GOI, CAG and RBI studies the money-management by the central finance
ministry.
The suggestion
is in the context of the casual approach to fiscal policy evidenced in the
recent past. Illustratively:
a)
Finance Ministry has been looking at
PSUs as fund-raising organizations. Ministry exerts pressure on PSUs to declare
dividend, ignoring institutional priorities.
b)
GOI expects institutions like LIC to
maintain surplus liquid funds on an ongoing basis, to be available for
diversion at short notice.
c)
Last year, RBI was persuaded to make
advance transfer of funds to GOI against year-end (RBI’s financial year is
July-June) transfer of surplus income. RBI Act doesn’t envisage such payments.
Dr Rajan had mentioned this in his September 3,2016 Delhi speech (That is not
an issue, as GOI can always introduce new provisions.)
d)
Now, a Panel chaired by Dr Bimal Jalan
has been appointed to make recommendations on the “Economic Capital Framework”
of RBI. If GOI manages funds in the HAL way, day may not be far off, when RBI
will find it difficult to meet the country’s international obligations.
Recently, an
expert compared loan waiver and recapitalization of PSBs and didn’t find much
difference. Recalled this just to remind that once GOI decides to do things in
a particular way, there will be experts to justify that approach. If the
semblance of professionalism in handling nation’s finances which used to be
evident till recently in budget speeches and policy announcements also
disappear, the price Indian Economy will have to pay to set right the country’s
balance sheet will be unimaginably heavy.
M G Warrier, Mumbai
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