Vol. 3 No. 6 (Nov-Dec) (2022): Indian Public Policy Review

The burgeoning fiscal deficit and debt sustainability in India have been a matter of concern for a long time. The levels of deficit and debt in India have been much higher than the levels seen in emerging economies. The Coronavirus Pandemic has brought the issue to the fore once again. The Russian invasion of Ukraine and the consequent sanctions have only worsened the situation. The attempts to control them by implementing rule-based fiscal policy, like in most other countries, have not been successful. The numerical targets on deficit and debt recommended by successive Finance Commissions and taken in FRBM Acts have been observed in their breach rather than compliance. The targets have been repeatedly revised and suspended, escape clauses have been invoked, and compliance, when shown, is done through creative accounting. To impart greater effectiveness to fiscal management, the paper argues for reforms in budget management and the creation of an independent institution to monitor the implementation of rule-based fiscal policy – the Fiscal Council as recommended by the Finance Commissions.

Considering a standard economic growth model, this study tries to empirically evaluate the effects of fiscal deficits on the economic growth of 14 major Indian states from 1980-81 to 2019-20. The panel fixed effect regression establishes that gross fiscal deficit (GFD), tax revenue, and inflation rates have a significant adverse impact on economic growth. In contrast, private investment, gross enrolment ratio (GER) in primary education, and the adoption of Fiscal Responsibility Legislations (FRLs) have favourable effects; non-tax revenues, GER in secondary education, and economic policy reform (EPR) didn't show any significant effect. Where FRLs were enacted, fiscal deficits showed a positive impact on growth in the post-FRL period. Further, we find a threshold effect of fiscal deficit on growth, implying that when GFD lies within a specified threshold, it has a positive impact; beyond this limit, it impedes states’ economic growth.

Environmental protection (EP) refers to actions targeted to maintain or restore environmental quality associated with various economic activities through financial provision and initiatives. India’s suboptimal performance in EP and climate action so far raises an enquiry into the nature of priority assigned and provisions made for environmental protection expenditure (EPE). This paper examines the recent trends of EPE in India and finds a visibly lower share of EPE in total expenditure and lower rate of growth in comparison to other heads under Classification of the Functions of the Government (COFOG). Capital expenditure on EP has been less than current while subsidy, fund transfer, loans and advances have been near zero. The allocation for environment is inadequate in comparison to other budgetary heads. India fares poorly in EPE when compared to the leading OECD countries, who are global trendsetters for EPE. The current study points at the need for identifying EPE as a core priority area for designing sustainability policies for the long run, by suitably redesigning budget allocation and fund disbursement for implementation of environmental programmes.

The objective of this study is to ascertain whether the Comptroller and Auditor General of India (the Supreme Audit Institution of India) functions as per its given mandate, and whether it requires any reorganisation and further strengthening. There is conflict of interest in keeping the accounts for States and auditing them by CAG, with potential scope to adversely impact the quality of both accounting and auditing. Further, ever since 1976, CAG continues to perform entitlement functions for employees of a majority of States, without any statutory authority, thus incurring irregular expenditure. With the present level of audit coverage, all the auditable units by CAG could not be covered in a way that can provide an assurance as to the completeness and timeliness of audit. The susceptibility of public finance to the political regime, the meagre rate of expenditure (about Rs. 32 for checking of financial transactions worth Rs. 1,00,000), and significant recovery of public money at the instance of audit provide adequate justification for strengthening of audit with more human resources. Thus, reorganisation of the institution of CAG to make it an exclusive audit institution, along with strengthening it (with adequate human resources) would better serve the objective of its creation.

The book is a must-read for those interested in learning about decision-making within the government, and young professionals keen to discover frameworks that guide policymaking.