A deficit of good intentions.

"Five years ago, when the 14th Finance Commission (14thFC) recommended an increase in devolution of funds to state governments and a hike in the share of untied funds they received, it was heralded as a new era for fiscal federalism in the country, and one that would significantly empower state governments at a time when they were facing rising development demands." wrote N Kwatra. As everything, it turned out to be a big 'jumla'. Why? "The share of Union transfers to states, as a proportion of gross tax revenues, has actually fallen over the past few years as compared to the earlier era, the period of the 13th Finance Commission." Because, "the Center seems to have simply upped its game in raising revenues through cesses and surcharges once again, diluting the promise of the 14th Finance Commission formula." Why the need for flimflam? "The Comptroller and Auditor General (CAG) has said that the central government's key deficit figures may be considerably higher than those stated in the union budget." The fiscal deficit in 2017-18 was 5.85% of GDP, and not 3.46% that the government reported. Why? "India is facing a silent fiscal crisis owing to a shortfall in tax revenues, and the government's budget suggests it may have grossly underestimated the problem." The Budget estimates tax revenues of Rs 25.5 trillion for this financial year but the Economic Survey showed tax revenues of Rs 20.8 trillion last year instead of the revised estimate of Rs 22.5 trillion. Instead of concentrating on fiscal deficit, which is the difference between expenditure and revenues, the government should concentrate on reducing revenue deficit, wrote Prof P Balakrishnan. "A revenue deficit of the Central government is relatively recent, having been virtually non-existent till the 1980s." This despite Indira Gandhi's "exposure to radical ideas in England, and the inheritance of a socialist state from her father Jawaharlal Nehru". After the 1980s "a rampant populism has taken over all political parties, reflected in revenue deficits accounting for over two-thirds of the fiscal deficit such as the case today." What to do? First, the government hides its borrowing by forcing public sector units to borrow instead, wrote Prof N Kaushal. Second, it raises taxes on fuel because retail inflation was still comfortable at 3.18% in June. Higher inflation reduces government debt, so with inflation staying within limits the government is forced to hide its debt from credit rating agencies. On the other hand, high inflation resulted in a decimation of the Congress. To plug the hole in the budget the government is to borrow Rs 700 billion worth in foreign debt because interest rates are very low abroad. Interest payment maybe low but if the rupee depreciates against the dollar, as it has done since 1947, the repayment amount will jump. So the government has to keep the rupee strong, which will hurt exports. Forget about middle income, we are stuck in poverty, wrote A Chhibber. You can win elections with jumla, but not the economy. One day we will stand naked.