Macho men have a subliminal attachment to the V shape because that is what they are supposed to look like. No coincidence that virility is also spelt with a V.
The sad truth is that a V shape does not come naturally. It is the consequence of lots of grunt work to sculpt away the fat which naturally accumulates – around the tummy for Indians – keep the muscles toned through regular exercise and eating wisely by calling a halt well before the stomach signals it is full.
The economy is no different. May was when the FM unveiled the expansive plan to soothe the pain from the Great Shut Down and restore growth. We still do not have the data of what the government spent (a proxy for doing) versus what it said during that period.
But we do know what the government did (spent) in April 2020. By then the Lockdown had started from March 25 and the global experience was pouring in from February.
In April 2020, the government’s revenue receipts were low – expected since India was Locked Down – at Rs 272 billion, barely 38% of the Rs 949 billion collected in April last year.
In contrast, revenue expenditure at Rs 2.78 trillion was 24% higher than in April the previous year. Isn’t that to be expected you might ask? After all, if revenue receipts get disrupted governments are expected to borrow and spend. And you would be partially right.
First, how much should be spent is determined by the impact such spending would have on debt sustainability. The usual ratio of Revenue Expenditure to Revenue Receipts for April is around 2.4X (2019) and 2.5X (2018). In April 2020 it was an astonishing 10.3X.
The conclusion is inescapable that the government’s expenditure managers were sleeping at the wheel whilst passing bills routinely rather than reacting to an emergency, war-like, situation.
Charitable observers might say government had to spend because look at the misery the Lock Down has caused. Well, surprise, surprise spending on major subsidies (food, fertilizer and petroleum) decreased by 76% as compared to last year in April and 64% versus April, the year before.
A greater social purpose was not the reason for the extravagant expenditure in April this year.
More significantly, despite all the branding about a Rs 100 trillion allocation over five years for infrastructure, the allocation for CAPEX in April 2020 was 7% less than last year and 29% less than in the previous year. Significantly increasing capex is an important metric for creating jobs for the poor. This was lost sight of in April.
What has increased significantly is expenditure on interest payment -by 36% over April the previous year and 71% more than April, the year before that.
The rising levels of interest reflect a steady growth in public debt which is already 70% of GDP. It should be noted that the possibility of debt levels rising to unsustainable levels – normally assumed to be 90% for countries growing between 4 to 6% (in real terms) per annum – is one of the reasons that MOODYS RATING JUNE 2020 downgraded Indian sovereign credit risk rating from Baa2 negative to Baa3 negative on June 1, 2020.
Left Liberals who want the government to go whole hog on a borrowing and spending spree should be worried. The down grade with a negative outlook implies further downgrades and thereby higher risk premiums for investment in India unless belt tightening and a significant reallocation of public resources towards social support (demand creation) and growth is urgently done.
Finishing the half done reforms (subsidies); enlarging labor benefits (in service and termination) whilst enhancing the owners ability to manage employment levels; liberalizing agriculture and fast forwarding financial sector restructuring and reforms are ongoing initiatives which need to be stepped up if global investors are to be convinced about India’s competitiveness.
Unless government first sets its own house in order, its capacity as a reforms’ manager will remain constrained. An unreformed government might spend more but do so unwisely, sparking inflation rather than growth and waste rather than targeted infusion of public capital.
So, what should government be doing over this year?
First, preserve outlays on CAPEX which immediately generate jobs – increasing the outlay for MNREGA from Rs 600 billion to Rs 1 trillion, was bang-on as “results oriented expenditure”.
Second, shun imported capital goods for defence. They do nothing for the domestic economy and are a drag on foreign exchange reserves.
Third, shun all new projects for the next two years and ensure the existing project book is completed instead.
Fourth, initiate basic governance reforms to reduce waste. Cut back on employment in the Union government. Freeze all new recruitments for two years till the cadre structures are reworked. Collapse the number of Ministries to no more than thirty from the seventy-three in existence today.
Fifth, slim down the proportion of positions for the All India Service Officers (IAS, IPS, IForestS) and the Central Services (IForeignS, IRS etc.) in the Union secretariat to not more than one half of the existing positions at any level of responsibility.
This will weed out the accumulated “in-service sinecures” – a result of “grade creep”, which civil services use whilst the armed forces are unable to – for “time bound” promotions within the elite cadres. For example, generals have increased far less than secretaries to the Union government.
Sixth, the waste in government is directly proportional to the amount of “paper” pushed within government. Order that all files are to be eliminated by December 25, 2020 (Good Governance day). All work thereafter would be digital. It is rumored that NITI Ayog is already fully digital.
Notify a big bonfire of all current government files on December 25 this year in Vijay Chowk- liberating us forever, from the periodic fires in government offices which consume select files; the peons who perpetually carry them about; the staff who “preserve” their jobs as “institutional memory” in the absence of a digital system of indexing, storing and retrieving data for decision making and the impossible tyranny of the “missing” file.
We will miss the Finance Minister’s red budget bag/jhola/bahi khata and peons lining the corridors in government offices. MPs will miss the voluminous paper dockets which are thrust at them in Parliament. Departing from tradition is painful but a necessary step towards a new, less-burdened India.
This commentary originally appeared in The Times of India.
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Sanjeev S. Ahluwalia has core skills in institutional analysis, energy and economic regulation and public financial management backed by eight years of project management experience ...
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