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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