Can it be fiscally feasible

Can it be fiscally feasible

When every sector is sputtering, can their sum-total, the economy, be racing ahead?

In 1995, when the US’ growth dipped from the previous year’s supercharged 4% to 2.7%, one of the finest macroeconomists of our time was the vice-chairman of the board of governors of the Federal Reserve. He had earlier advised President Bill Clinton as a member of the Council of Economic Advisers. In 1995, when Clinton asked for his opinion, Alan Blinder replied, “Well, a little inflation can’t do any harm.”

Immediately, Blinder found himself cornered by the Boston Brahmins of the conservative establishment, led by their boss, Alan Greenspan. These folks had notions about economics that would make John Maynard Keynes’ ideas look like a Naxal conspiracy. Blinder’s recipe was to boost growth by pushing public spending on good things like healthcare, education and infrastructure, and if this meant a slight slippage from deficit targets and slightly higher prices, well, that was a price well paid for boosting growth and jobs.

Inflate and Use

Now, this was a time when Greenspan and his cronies were focused on hiking interest rates to choke off inflation, and to hell with what it did to jobs and growth. Greenspan & Co were not outliers. All politicians, bureaucrats and sarkari folk hanker for a system that’s Goldilocks-perfect: not too hot, not too cold, just right.

So, inflation, which is a tax on the poor, has to be modest. To achieve that, interest rates, the cost of borrowing, has to be kept low. This should boost growth and jobs. But once growth picks up, prices are likely to rise, which needs interest rates to be bumped up to divert cash from consumption to savings, which hikes the costs of borrowing for the government and everyone else.… In this sort of system with many moving parts, most of which impact the others, it’s impossible to device a unique, platonic, Policy of Everything. Economists develop insomnia doing the algebra to constantly calibrate all sorts of stuff, just so everything doesn’t blow up as a consequence of a midnight tweet from Donald Trump.

Politicians have sweet dreams of low inflation, jobs for all, the poor getting rich (and the rich, richer), government pouring an endless stream of money for good works. And the fiscal deficit, a two-word phrase bandied around by global busybodies and banks, is a neon-lit 3% of GDP.

Yet, once in a while, the mosquito of reality bites, politicians and babus realise that valves are bursting at the seams, engines are stalling, momentum is lost and the economy might be crashing. Never mind, it says, tell the people everything’s fine: food is cheap, jobs will come, electricity is free, so buy electric cars and save fuel costs. Love your toilets and 3% fiscal deficit.

Thus it was for the Narendra Modi regime. All of a sudden, people started asking how, when every individual sector was sputtering, their sum total, the economy, was racing ahead? Surely 2+2 couldn’t be anything greater than 4? Then the government refused to release a report by India’s top official statistical office, which leaked to media showed joblessness in India at a 45-year high.

Mumbai-based Centre for Monitoring Indian Economy (CMIE) showed through its own samples that in 2006-07, nearly 8% of all implemented projects were completed each year. This number fell to 5.4% last fiscal.

Rechecked, Reconfirmed

But now it looks like statistical Armageddon is upon us. On Thursday, Dinesh Narayanan reported in ET that the venerable Comptroller and Auditor General (CAG) of India, charged with checking the books of every sarkari department, ministry and State-owned company, says official fiscal deficit number, around 3.5% of GDP in 2017-18, was, well, a gross understatement of the actuals.

CAG says what many had suspected over the last few years: GoI was removing large chunks of its spending from its own accounts, and dumping them on State-owned insurers, financial institutions and public sector companies. Sometimes, it simply forgot to note its arrears to other departments.

So, chunks of unpaid food and fertiliser sops haven’t been noted in the Budget. Cooking gas subsidies have been paid by State-owned oil companies like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL). There’s much more: liabilities of Power Finance Corporation, Indian Railways, the highway authority and so on have been brushed under the charpoy.

CAG reckons if all these ‘off-Budget’ deals were accounted for, India’s fiscal deficit would be 5.85% of GDP, not a comforting 3.5%. In rupee terms, GoI’s actual deficit is nearly ₹4.1 lakh crore, 61% higher than the reported number.

In Lewis Carroll’s Through the Looking-Glass, after Alice tells the White Queen, “One can’t believe impossible things,” the Queen retorts, “I daresay you haven’t had much practice.… Why, sometimes I’ve believed as many as six impossible things before breakfast.” New Delhi has proved it can beat the Queen before she finishes muttering ‘fiscal deficit’.