Debt-Servicing Dents Parliament Control On Spending

Those who believe that constitutional capping of the fiscal deficit to prudent limits would curb government profligacy by bringing spending under the direct purview of Parliament are in for a surprise.

As per the last estimates, the Lok Sabha controlled only a little over 30 per cent of annual government spending. The balance of 70 per cent is forked out largely towards meeting debt-service obligations.

If percentages are worrying then the numbers are even more startling.

In 1999-2000, of the total spending of Rs 717,293 crore, a sum of Rs 478,795 crore was spent without Parliamentary approval. As much as 85 per cent of Rs 478,795 crore was towards meeting debt service obligations.

 

Senior government officials, concurring with the view that mere capping of the fiscal deficit would not help, said, "something has to be done about the overhang of past debt. The cap has to be prudent and not some unattainable figure. Till the past debt obligation is reduced drastically capping doesn't achieve much".

Clearly, fiscal profligacy of the past has acquired a momentum of its own.

As a result, elected representatives are increasingly having lesser control over annual public spending.

In other words, their ability to influence spending towards public needs is restricted only to 30 per cent of the national pie.

This is because budgetary spending is achieved either through appropriation - for which the government moves a demand for grants - or by automatically charging the Consolidated Fund of India.

Under Article 112 of the Constitution, payments towards interest and debt-servicing are directly charged. The Consolidated Fund of India is the repository of all revenues, internal and external loans and moneys received by the government in repayment of loans.

The government is proposing a Fiscal Responsiblity Act, the draft of which is being readied. The flexibility to do so is already available in the constitution under Article 292. Dealing with the executive power of the Union government to borrow, the constitution allows for a limit to be fixed by Parliament under law.

By putting a statutory cap on the internal debt, Parliamentary approval would be required every time the government wanted to breach it. This, some sections of government argue, would make it very difficult to implement. They also maintain that a cap on the entire internal debt was not feasible as even small savings accretions are included under it.

In the United States, a slightly different strategy is pursued where specific limits are set on three categories - defence, international and domestic - of expenditures in the budget.

Breaching of any of these limits triggers a corrective process which is legally binding.

Further, a system of `pay-as-you-go' has been instituted under which provisions for new direct expenditures or reduction in revenues must be offset by adjustments elsewhere so that the net deficit remains unaffected.