📰 Crime as punishment
The state must get tough on crime, but the police should not be allowed to break the law
•The Uttar Pradesh (U.P.) police’s account of the killing of Kanpur gangster Vikas Dubey on Friday, even if taken at face value, is a startling admission of serious ineptitude. But the official narrative, as it stands, stretches the bounds of credulity to an astonishing extent. The possibility that his death is officially sanctioned retribution for the murder of eight policemen who were part of the team that went to arrest him on July 3 is hard to dismiss out of hand. Without a doubt, Dubey’s death in an ‘exchange of fire’ while he was ‘trying to flee’ after the police vehicle in which he was being taken ‘met with an accident’ is also extremely convenient for many; it puts a lid on the sordid tale of his violent rise to power and influence, which was nourished by a wider network of patrons, including some in the police force. A hardened criminal, who had 62 cases against him before his gang allegedly shot dead eight policemen last week, was supposedly being transported without handcuffs; he snatched weapons from those escorting him, according to the police version of the incident. Indeed, this is no more than a self-indictment of the state police, whose conduct has raised far too many questions in the recent past. There is no good explanation for driving such a suspect through the night across more than 600 km from Ujjain in Madhya Pradesh where he was arrested on Thursday. The brutal last episode of Dubey’s serial crimes should be no defence if the shooting turns out to be an extra-judicial killing.
•Any demand of probity and accountability in police and military is often contested on the supposed ground that it emerges from a support for criminals, terrorists or enemies of the state by influential political and public figures. There is no question that crimes such as those Dubey was involved in must be met with exemplary punishment. The process of establishing guilt and executing punishment is not an incidental part of justice, but its integral soul. A fair and transparent trial cannot be dispensed with in order to satisfy cries for vengeance. Social sanction of instant justice by state agents might have leached into institutions that are mandated to enforce the rule of law. Last year, when the Cyberabad police shot dead four people accused in a case of gang rape and murder, people celebrated in the streets. The courts and the National Human Rights Commission have also shown a lenient approach in such cases. Goading the police on to deliver instant justice, or even tolerating such behaviour, creates an atmosphere of impunity that could lead to murder of innocent people as happened with the custodial deaths in Tamil Nadu. Support for such killings by the police will not make a society more just. Mob justice is no justice at all. When law enforcers short-circuit due process, the damage to state institutions is severe and long-lasting.
There is a huge gap between what the 14th Finance Commission promised to States and what they have received
•India is in the midst of the Bharatiya Janata Party (BJP)’s decade of governance. The previous time one party dominated for nearly 10 years was four decades ago, when the Congress had brute majorities between 1980 and 1989. In that period, the tussle for the rights of States was focused on Article 356. Using pliant Governors, regional party governments were politically destabilised. There was lip service paid to the report of the Justice R.S. Sarkaria Commission on Centre-State relations, but its spirit was twisted.
•History is repeating itself but much more cripplingly. The principal tool of combating State governments is no longer Article 356. Once more a well-meaning report, the report of the 14th Finance Commission, is being cited, but it is also being sabotaged step by step. And all this is being done while supposedly upholding “cooperative federalism”. This began well before COVID-19, but the pandemic and its economic disruption have brought things to an edge.
Delayed payments
•The 14th Finance Commission report was accepted in 2015 with the promise that it would devolve more finances to the States. As part of the process, States would have new responsibilities, especially in the social sector. Two years later, the introduction of the Goods and Services Tax (GST) regime was also justified as a grand bargain that would eventually leave all States better off.
•In reality, tax devolution to States has been consistently below 14th Finance Commission projections. One reason for this has been the economic slowdown, caused primarily by the Central government, and lower-than-expected GST collections. The shortfall in GST collection for 2018-2019 was 22% when compared to projections. Payments have been delayed as well. For example, Centre owed States about Rs. 35,000 crore as GST compensation for December 2019 and January 2020, which was only paid in June 2020 after a delay of more than five months.
•The Centre has imposed a series of cesses, which are not part of the divisible pool and not shared with the States. There are now rumours of a COVID-19 cess as well. According to a study by the Centre for Policy Research, there is a Rs. 6.84 lakh crore gap between what the 14th Finance Commission promised to States and what they have received. And while this has happened, the nature of public spending in India has undergone a massive shift. In 2014-2015, States undertook programmes and projects spending 46% more than the Central Government; today the figure is 64%. Despite this, the Centre’s fiscal deficit exceeds the consolidated State deficit by 14%! India is paying for a profligate Centre.
•The COVID-19 situation has deepened the crisis. According to a State Bank of India report, the collective loss to GSDP due to the pandemic is Rs. 30.3 lakh crore or 13.5% of GSDP. States are being required to spend more to help common citizens and save livelihoods. The Centre is providing almost negligible support. In West Bengal, as of June 30, the State government had spent Rs. 1,200 crore in fighting COVID-19. The Centre has given Rs. 400 crore under the National Health Mission and to the State Disaster Response Mitigation Fund, but absolutely nothing specifically for the pandemic.
•Cyclone Amphan, the worst cyclone in Bengali memory, devastated 2.8 million houses and 1.7 million hectares of farm land. The loss was estimated at Rs. 1.02 lakh crore. The Mamata Banerjee government in Kolkata immediately released Rs. 6,250 crore; the Centre has offered just Rs. 1,000 crore.
•Following the pandemic, the Ministry of Finance has asked all Union Ministries to cut expenditure. The immediate impact is being felt by States, and grants-in-aid are drying up. Crucial rural development programmes have come to a standstill.
•The Union Rural Development Ministry is supposed to transfer Rs. 4,900 crore to West Bengal in 2020-21 for projects to be undertaken by panchayati raj institutions. A quarter of the financial year has passed but not a single paisa has come. Around 70% of this money is meant for gram panchayats and 30% for panchayat samitis and zilla parishads. This formula came after a recommendation from Chief Minister Mamata Banerjee, which the Prime Minister accepted. The funds are meant for building roads, culverts and bridges, local drinking water projects and similar schemes that create jobs and help village economies. All this has come to a halt.
•Overall if one considers dues for Centrally-supported schemes (Rs. 36,000 crore); the cut in devolution of funds (Rs. 11,000 crore); outstanding GST receipts (Rs. 3,000 crore); and dues for food subsidies and other heads (Rs. 3,000 crore), the Centre owes West Bengal Rs. 53,000 crore. I can’t speak for all States but for West Bengal this is a huge burden, especially in a calamity-hit year such as 2020.
FRBM provisions
•As they put more money into people’s hands, governments across the world are struggling to meet fiscal deficit targets this year. In India, even States that have maintained fiscal discipline in recent times have had to cope with needs of suffering citizens and spend more under essential, social sector heads. The fiscal deficit for States, collectively, is inevitably going to breach the projection of 2.04%.
•As per provisions of the Fiscal Responsibility and Budget Management (FRBM) Act, the Gross State Domestic Product (GSDP) can actually accommodate a fiscal deficit of 3%. The States have respected the limit for years and the projection for 2020-21 reflected this. Now, post-pandemic, this limit will be crossed. The FRBM has an “escape clause” that allows for a one-time relaxation of the fiscal deficit threshold upto 0.5% in a time of exigency. The escape clause has been utilised by the Centre but it has proven woefully insufficient in addressing the current crisis.
•Fiscal policymakers and technocrats agree that the rigidity of the FRBM has to be revisited. It should allow for greater flexibility and consultation as to when and how the “escape clause” can be applied. This goes beyond the current COVID-19 situation, but has come to light because of it — and because the Centre has gone in for subjective interpretation, imposing conditions that are outside the scope of the FRBM.
•In theory, the Centre has raised the fiscal deficit limit for States, under the FRBM, from 3% to 5%. But only 0.5% of this rise is unconditional. The remaining 1.5% is dependent on fulfilling certain unrealistic and impractical measures — including privatisation of power distribution,and enhancing revenues of urban local bodies.
•States are being set up for failure. This is the true picture of the BJP’s “cooperative federalism”.
📰 Do we need a fiscal council?
An institutional behemoth with such a wide job chart will likely add more to the noise than to the signal
•The government needs to borrow and spend more now in order to support vulnerable households and engineer economic recovery. But that will mean a steep rise in debt which will jeopardise medium-term growth prospects, an issue prominently flagged by all the rating agencies in their recent evaluations. It is possibly the fear of market penalties that is holding the government back from opening the money spigots.
•Many economists have faulted the government’s fiscal stance, arguing that this is no time for restraint; the government should spend more to stimulate the economy by borrowing as may be necessary, but at the same time come out with a credible plan for fiscal consolidation post-COVID-19 in order to retain market confidence. But will the market be persuaded by the government’s assurance of future good conduct? Like St. Augustine who prayed, “god, give me continence, but not yet!,” will the markets instead see the government as asking, “god, give me fiscal rectitude, but not yet?” Not necessarily, say the commentators. The government can signal its virtue by establishing some new institutional mechanism for enforcing fiscal discipline, such as for example a fiscal council. The suggestion of a fiscal council actually predates the current crisis. It was first recommended by the Thirteenth Finance Commission and was subsequently endorsed by the Fourteenth Finance Commission and then by the FRBM (Fiscal Responsibility and Budget Management) Review Committee headed by N.K. Singh.
Present in 50 countries
•According to the International Monetary Fund (IMF), about 50 countries around the world have established fiscal councils with varying degrees of success. Abstracting from country-level differences, a fiscal council, at its core, is a permanent agency with a mandate to independently assess the government’s fiscal plans and projections against parameters of macroeconomic sustainability, and put out its findings in the public domain. The expectation is that such an open scrutiny will keep the government on the straight and narrow path of fiscal virtue and hold it to account for any default.
•Do we really need a fiscal council? Sure, we do have a chronic problem of fiscal irresponsibility, but is a fiscal council the answer? Recall that back in 2003 when FRBM was enshrined into law, we thought of that as the magic cure for our fiscal ills. The FRBM enjoins the government to conform to pre-set fiscal targets, and in the event of failure to do so, to explain the reasons for deviation. The government is also required to submit to Parliament a ‘Fiscal Policy Strategy Statement’ (FPSS) to demonstrate the credibility of its fiscal stance. Yet, seldom have we heard an in-depth discussion in Parliament on the government’s fiscal stance; in fact the submission of the FPSS often passes off without even much notice. If the problem clearly is lack of demand for accountability, how will another instrumentality such as a fiscal council for supply of accountability be a solution? It can be argued that a fiscal council will in fact be a solution because it will give an independent and expert assessment of the government’s fiscal stance, and thereby aid an informed debate in Parliament. A fair point, but do we need an elaborate permanent body with an extensive mandate for this task?
The council’s mandate
•Consider for example the model suggested by the FRBM Review Committee. As per that, the fiscal council’s mandate will include, but not be restricted to, making multi-year fiscal projections, preparing fiscal sustainability analysis, providing an independent assessment of the Central government’s fiscal performance and compliance with fiscal rules, recommending suitable changes to fiscal strategy to ensure consistency of the annual financial statement and taking steps to improve quality of fiscal data, producing an annual fiscal strategy report which will be released publicly.
•An institutional behemoth with such a wide job chart will likely add more to the noise than to the signal. For example, the fiscal council will give macroeconomic forecasts which the Finance Ministry is expected to use for the budget, and if the Ministry decides to differ from those estimates, it is required to explain why it has differed. As of now, both the Central Statistics Office (CSO) and the Reserve Bank of India (RBI) give forecasts of growth and other macroeconomic variables, as do a host of public, private and international agencies. Why should there be a presumption that the fiscal council’s forecasts are any more credible or robust than others? Why not leave it to the Finance Ministry to do its homework and defend its numbers rather than forcing it to privilege the estimates of one specific agency? Besides, forcing the Finance Ministry to use someone else’s estimates will dilute its accountability. If the estimates go awry, it will simply shift the blame to the fiscal council.
•Another argument made in support of a fiscal council is that in its role as a watchdog, it will prevent the government from gaming the fiscal rules through creative accounting. But there is already an institutional mechanism by way of the Comptroller and Auditor General (CAG) audit to check that. If that mechanism has lost its teeth, then fix that rather than create another costly bureaucratic structure.
Starting it small
•Let us, despite my arguments above, grant that a fiscal council will indeed add value. Then the way forward is to start small and scale it up if it proves to be a positive experience. I would suggest the following low cost and reversible start-up.
•A week before the scheduled budget presentation, let the CAG, a constitutional authority, appoint a three-member committee for a five-week duration with a limited mandate of scrutinising the budget after it is presented to Parliament for its fiscal stance and the integrity of the numbers, and give out a public report. The CAG’s office will provide the secretarial and logistic support to the committee from within its resources. The Finance Ministry, the RBI, the CSO and the Niti Aayog will each depute an officer to serve in the secretariat. The committee will be wound up after submitting its report leaving no scope for any mission creep.
