Our successive budgets have always followed accounting and disclosure standards that are – to put it mildly - misleading.

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When the interim finance minister presents the interim budget, he will likely show that the government has largely achieved its fiscal deficit targets.

Analysts will politely applaud, and then debate the extent of “innovative” accounting involved. After all, the government’s total receipts are well short of budgets. Real expenditures are higher than budget. It follows that the true fiscal deficit must be higher than budget.

The government will deploy creative accounting solutions around this. It will magically convert borrowings by government owned entities into lower expenditure at the central level. It will transfer money from its left pocket to its right and show a net receipt to itself. And since it follows cash accounting, it will simply delay paying out expenses and refunds, to show lower expenditures and higher revenues.

The government will deny or ignore speculation about the scale of the subterfuge – which one fears could be as high as 1 percent of GDP. It will correctly point out that it is doing nothing different from what previous governments have done – though the extent will be a matter of debate.

The best way to end speculation about one’s books would be to adopt better accounting standards. The government itself rightly demands these better standards from businesses in India. The fact that successive governments have balked at doing that should make us worry about the true extent of our accounting hole.

Borrow and Pray

Even through these tinted accounting lenses, the quality of our fiscal spending looks questionable.

If we’re growing at 12 percent and can borrow at 8 percent, borrowing and investing is actually a good idea. We needn’t worry too much about fiscal deficits then, as long as we are putting the borrowed money into education, roads, irrigation and other productive investments.

The tricky bit is that we are not just borrowing to invest. We are borrowing – a lot - just to pay our current bills. Our spending on current expenses such as interest payments, salaries, pensions, government schemes etc. alone are well in excess of our revenues.

This difference – the “revenue deficit” in fiscal parlance – is actually rising the past three years and could top 3 percent of GDP this year.

It feels like we’re consuming beyond our means now, in the hope that our children will live up to their promise and pay off our debts.

As a corollary, it feels like we are not investing enough in our children’s future – unless you make the very debatable argument that any form of spending now is good for our children.

The Shiny New Toys

Rather than debate transparency and quality of the budget, in the recent past, we economists and academics have shown our politicians even more shiny new toys.

We have suggested that one way to help the poor in our country is to hand over money to them. Of course, we have also pointed out that they would have to cut down on other expenditures, but we aren’t sure if anyone has heard that bit.

We have suggested that we don’t need to monitor how much the government borrows just to pay current expenses such as salaries, pensions, and interest payments. In other words, there now isn’t a revenue deficit target that the government has to adhere to.

We have suggested that the RBI balance sheet has a magic lamp waiting to be rubbed.

We have set up a system where the RBI can step in to helpfully buy large amounts of government bonds whenever there is a flight of capital from the country, without any debate around the consequences.

If we look past the bells and whistles that accompany all this, we might find that our core recommendations are to simultaneously borrow more money and print more money.

Idi Amin would be pleased.

The Real Debate Needed

Maybe borrowing and printing money could actually work. Genuinely. After all, inflation is low, growth is sputtering, crude oil prices are (fingers crossed) manageable, and the global context is comparatively benign. Perhaps government spending and some printing of money is what is needed to kindle India’s animal spirits. Maybe this time is different.

On the other hand, maybe not. Maybe we risk a repeat of the past, when large government spending inevitably caused macroeconomic vulnerability, inflation, twin deficits and financial instability.

Maybe there still is no such thing as a free lunch.

These are real questions that need to be debated and answered. Instead, we are preoccupied with our shiny toys, and could be on the verge of a huge economic gamble, unsure of the outcomes.

Truth & Discipline

The chapter of the Economic Survey of 2016-17 that dealt with the idea of Universal Basic Income (UBI), speculated that the Mahatma might have been conflicted with the idea of UBI, but that on balance, he might have given the go-ahead.

One aspect the Mahatma would have been totally against is the pretense that accompanies our budgets. Besides the moral dimension, there is no point in keeping up a pretense when everyone knows there is one. By continuing with status quo, we only spur dangerous speculation about how ugly the truth might actually be.

It is time we moved decisively towards better transparency in our government books of account. It is time we have a bipartisan, independent oversight of the budget along the lines of the Congressional Budget Office in the United States.

Only when we know our true economic status can we truly contemplate and debate our shiny toys.

At a time when our politicians are hurtling into a spiral of competitive populism, we need the checks and balance of truth and discipline.

Ananth Narayan is Associate Professor-Finance at SPJIMR.

First Published:Jan 31, 2019 8:10 AM IST