Bill of rights

A fiscal responsibility law is a good idea because it carves into granite all the things finance ministers should not do. These also happen to be things prudent finance ministers (and which of them does not claim to be prudent?) say they do not want to do but are compelled for various reasons to do. Yashwant Sinha has done well to keep his promise and prepare a bill which will strengthen his arm and the arms of all his successors. With cabinet approval obtained, the tablets with all the prohibitions written on them will be taken to Parliament, most probably next week. But as he introduces the bill, Sinha will know that nothing will change by itself once the law is enacted. Finance ministers will have to go on struggling against the odds to cut expenditure, to hold the revenue deficit down, to keep government borrowing within prescribed limits and so on. All these tasks are really about making hard political choices. But ruling parties generally prefer the soft option of trying to please everybody and theresult is that fiscal discipline goes out of the window.

A fiscal responsibility law will not make a major difference to basic political tendencies. Prudent finance ministers can still be undermined by their colleagues. Nor will it change accounting practices whereby revised estimates of expenditure at the end of the year overshoot, with monotonous regularity, estimates made at the start of the year. What will the penalties be for breach of the law? Despite the many inadequacies, a FR law is necessary in the way that the ten commandments are necessary to show finance ministers and the political class the true path. Thou shall not increase the public debt beyond 33 per cent is the equivalent of, say, thou shall not steal. The latter does not abolish theft but sometimes deters it. So the former will not cap borrowing all the time but will surely deter excessive borrowing some of the time. The law can be a finance minister’s best friend when she is being compelled to go against her better judgement. Above all, an FR law will give the public a permanent yardstickagainst which to measure the government’s performance and even a stick with which to beat it. These must be considered positive outcomes.

As for the specifics of Sinha’s bill, the most effective provision is the one on a 10 per cent statutory cut in government expenditure. It would have been impossible to raise the pay and perks of government servants as steeply as they have been raised had such a law been in force. Or if the pressures were overwhelming, the government would have had to find matching cuts elsewhere before accepting the recommendations of the Pay Commission. A three-tier fiscal management structure consisting of politicians, secretaries and non-official experts sounds good on paper. Its effectiveness will depend primarily on the resolve of the finance minister and his political colleagues to implement decisions. A word of advice for Sinha: Make certain that NDA partners, particularly members from the Trinamool Congress, TDP and DMK, attend Parliament during the debate and support the bill wholeheartedly.