The figures reveal that the fiscal deficit till December 1998 was a whopping Rs. 73,434 crore, as against Rs. 41,463 crore in the corresponding period last year. This level is 81 per cent of the target projected in the budget. Last year, the fiscal deficit was only 63 per cent of the target at this time. In the last three months of the financial year, routinely there is a massive spurt in government expenditures. This is confirmed by the experience over many years. Given this, the fiscal deficit could well leap beyond the liberal target of Rs. 91,025 crore projected in the last budget.

The profligacy and the irresponsibility of the present government can be seen from the fact that this year its expenditure is 26 per cent more compared to the corresponding period last year. It is, in fact, double the expenditure increase projected for this year in the last budget at 13.89 per cent. Much of this expenditure has been under the non-plan head, which shot up by 28.48 per cent. Plan expenditure rose by just 18.6 per cent, meaning clearly that the government's expenditure has had virtually very little to do with developing the much needed social and economic infrastructure. It is a simple case of careless and cavalier spending.

A significant chunk of this huge expenditure would have gone to finance the unilateral decision taken by this government, in violation of the national consensus, to conduct Pokharan-II, apart from its utter mismanagement of the economy.

Worse is the fact that external financing (i.e., loans and other international borrowings), targeted at Rs. 2,336 crore, actually turned out to be negative, at minus Rs. 1,283 crore. This clearly shows the extent to which the country has been mortgaged. The outflow of resources in the form of repayment of interest and principal of past loans is higher than the inflow.

That the government has resorted to unprecedented profligacy is revealed by the data on primary deficit (fiscal deficit minus interest payments). This actually reflects the real spending of the government in the current year since interest payments are on commitments made in the past. While the budget estimated this to be Rs. 16,025 crore with three months left of the current financial year, this has shot up to Rs. 28,757 crore.

REVENUE SHORTFALL

On the other hand, the revenue of the government shows a shortfall from the budgeted estimates. On the basis of the said figures, the total revenue receipts till December 1998 reflected a negative 15 per cent growth, compared to December 1997. The total revenue collected till now is barely over 60 per cent of the target. With just three months left for the present financial year to end, the rest of the 40 per cent are very unlikely to be mopped up.

Clearly, therefore, while the government's revenues are showing a massive shortfall, its expenditure, on the other hand, has ballooned significantly.

Before we come to the question of how the government has financed such irresponsible expenditure, as a digression a word about the much-maligned public sector is in order. One of the few heads that show a positive trend has been non-tax receipt. These mainly comprise PSU dividends that accrue to the government. These went up by nearly 15 per cent, amounting to nearly Rs. 4,000 crore more compared to last year.

CRIMINAL PROFLIGACY

The BJP-led government has chosen to finance its profligacy by resorting to market borrowing on a massive scale. Compared to Rs. 39,445 crore in April-December 1997, the government's borrowing in April-December 1998 from the domestic banking and other financial sources shot up to Rs. 56,078 crore. Such a sharp hike in the domestic financing pattern of the government expenditures, apart from showing the extent to which the government is living on borrowed money, also contributed to the recessionary trend in Indian economy since it left very little for private investment from the banking system. Further, such borrowings have not gone in for any meaningful investment in the social and economic infrastructure but merely to meet the day to day expenditures.

The most unfortunate part of this tragic picture is that such criminal irresponsibility is taking place when our economic fundamentals are sharply deteriorating. Through these columns earlier, we had detailed the extent of slowdown in the growth rates of industrial sector, which is virtually gripped in a recession. In addition to that, the agriculture ministry has recently released its preliminary estimates showing that the total foodgrain production is likely to be 195 million tonnes, far below the target of 200 million tonnes. This only confirms the trend of declining foodgrain production, with rates of growth far below that of population growth, which is a consistent feature of the post-reform period (see Economic Notes, People's Democracy, February 7).

Thus we have a classic situation where the economy slows down while the government merrily spends beyond its capacity.

NEED OF THE DAY

Given this, what should be the thrust of the forthcoming budget? This crucially depends on the diagnosis of why the economic fundamentals are in such dire straits today. The government and the votaries of the LPG never tire of peddling the myth that the economy can be improved only by making available more capital for investment. Hence, the clamour for foreign investment and easing the cost of domestic borrowing for the corporate sector.

However, as argued in these columns earlier, even if such capital was to be made available and production grows, where are the people to buy these goods? In a situation of sluggish growth of the economy, decline in agricultural production and slowdown of industrial activity, purchasing power in the hands of the common people does not grow adequately to constitute a demand for these goods. Worse still, with growing unemployment and high rates of inflation, the real earnings of the people decline, if not remain stagnant. Thus with a stagnant and highly restricted domestic market, no amount of availability of capital can recharge the economy. What is required is to expand domestic demand. To put it in a nutshell, the problem with Indian economy today is that those who have money do not need the goods being produced since they already possess them. On the other hand, those who need these products do not have the money to buy them.

Thus if the budget were to address itself to overcome this situation, its thrust ought to be on expanding the domestic demand. The first step in this direction would be to increase the government's capital expenditures in social and economic infrastructure. This would generate employment and boost domestic demand. Secondly, in order to do so, the government would need to expand the tax base to bolster its revenues. Apart from removing the gross irregularities in that export-import trade that siphon off thousands of crores annually, and taking measures to recover the written-off loans from the nationalised banks which some years ago were estimated to be over a whopping Rs. 40,000 crore, the government should consider taxing the rural rich.

Thirdly, such effort at revenue mobilisation should be based on direct taxes and not indirect taxes as has been the practice so far. Indirect taxes pass the burden on to the consumer through price hikes, resulting in a fall in their capacity to buy other products. This is particularly true of levies on essential items like food, petroleum, etc. On the other hand, direct taxes tap the rich who can afford to part with a portion of their resources.

Finally, innovative programmes for food for work must be introduced, along with a massive rural infrastructure development initiative that will generate rural employment and consequently bolster domestic demand.

VICIOUS CIRCLE

However, given the tendency of the present government and the LPG votaries, such a direction to the budget appears unlikely. In the name of curtailing the deficits, the government may well end up contracting its expenditures and further reducing the woefully inadequate subsidies, thereby compounding the recessionary tendency.

Further, such a contraction can come only by attacking the already meager food and other subsidies for the people. This is so because 82.4 per cent of the estimated fiscal deficit in the budget presented last year was due to interest payments alone. This could well have gone up substantially given the virtual 15 per cent devaluation of Indian rupee, making our foreign loans and interest payments more expensive in rupee terms. Given this, contraction of government expenditure would only lead to further abdication of its social responsibility, meaning further reduction in the expenditure meant for the people, especially the poor. This would lead to further impoverishment and consequent contraction of domestic demand, compounding the recessionary conditions.

We are thus trapped in a vicious circle: To reduce the fiscal deficit, the government reduces its expenditures; reduction of expenditure contracts domestic demand which in turn contracts economic activity; and this in turn reduces government's revenues. Next year, therefore, the gap between revenue and expenditure will increase further, forcing the government to further reduce its expenditure. Thus the cycle is likely to continue till the country is totally mortgaged and the vast majority of the people impoverished.