ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fiscal Near-Collapse

Fiscal Near-Collapse PRESENTING his first budget, that for 1991-92, Manmohan Singh had argued in July 1991 that the root cause of the acute fiscal and current account imbalances confronting the country was the rapid rise in the government's revenue deficit. Promising fiscal adjustment in the first year and fiscal consolidation within about three years thereafter, the finance minister had said: "In the medium-term, however, our fiscal regime would be sustainable only if revenue receipts not only meet revenue expenditure but also provide a sufficient surplus to finance capital expenditure that does not yield direct economic returns as such, as in defence or in social sectors." He accordingly promised a significant reduction "both in the fiscal deficit and in the revenue deficit as a proportion of GDP". In the two following years the government entered into a series of borrowing arrangements with the IMF, the World Bank and the Asian Development Bank under which fiscal adjustment was a critical performance criterion. What is now clear, in retrospect, is that the forced observance of conditionalities attached to these arrangements has ensured that any genuine fiscal correction will be wellnigh impossible in the foreseeable future. Manmohan Singh's fourth budget is proof of this. The 1993-94 budget, prepared when the economy was still under IMF/World Bank scrutiny, had promised thai the overall fiscal deficit would be brought down from Rs 40,173 crore (6 per cent of GDP) in 1992-93 to Rs 36,959 crore (4.7 per cent of GDP) in 1993-94 and that the revenue deficit would be contained at Rs 17,630 crore (2.2 per cent of GPP) in 1993-94 and the primary deficit at a negative figure of Rs 1,041 crore. These claims and expectations have been reduced to utter shambles.

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