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Home»Articles»Fiscal Deficit of the Public Sector in India: Issues on Data Reliability, Accounting Flaws and Missing Variables

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Asian Review of Social Sciences (ARSS)

Editor Dr. Lakshmi Narayanan
Print ISSN : 2249 – 6319
Frequency : Quarterly

Fiscal Deficit of the Public Sector in India: Issues on Data Reliability, Accounting Flaws and Missing Variables

Author : K. A. Aneesh
Volume 8 No.1 Special Issue:February 2019 pp 13-19

Abstract

Fiscal deficit, one of the widely acclaimed and internationally accepted measures of fiscal imbalance, is faced with a lot of conceptual and accounting issues in India. The definition of deficit has been changing and therefore there is no consistency in the official series of deficits published by the government of India. Since 1991, budgets were being framed in the context of the New Economic Policies (NEP) consisting of the Stabilization Policies and the Structural Adjustment Policies (SAP). While, the fiscal austerity in the form of expenditure reduction and revenue enhancement as a corollary to NEP has hardly worked out in India. However, the Central government has undertaken several measures to show a reduced fiscal deficit in India. One of the ways practiced was to implement some changes in the accounting practices over the years. This was by including some additional elements in the definition of deficit and excluding some other items. The second practice was to transfer the deficit of the Centre to other layers of the government. In a broad fiscal policy regime framework following Prof. Arun Kumar’s modified National Income Identity (1988), a total government or public sector comprising of the Centre, State/UTs and local-self-governments as well as the Public Sector Enterprises (PSEs) at the Centre and State levels. The problem of deficit shifting can be automatically avoided by taking the whole public sector into the analysis, which makes the empirical results on interrelationship between fiscal deficit and various macroeconomic variables more realistic and convincing. Still, there is a paucity of white economy data, because of the existence of substantial black economy in India. Its non-inclusion in analysis results in a partial understanding of the economy and often incorrect policy pronouncements. The need to incorporate the black economy is not simply an empirical matter, but a theoretical necessity. This paper in general tries to bring the aforementioned issues on data reliability, accounting flaws and missing variables into the discussion and attempt to correct the fudges in the official deficit series published by the government and also tries construct a compiled series of deficit for the public sector in India. The empirical section of the paper explains the significance of black economy as a variable to be included in the analysis to get better understanding of the economy.

Keywords

Fiscal deficit, Public sector in India, Fiscal policy regime, National income identity, Black economy

Full Text:

References

[1] Acharya, S. and Associates (1985). Aspects of the Black Economy in India, NIPFP, New Delhi.
[2] Bhattacharya, B. B. (1991), (August 24), Macro Imbalances, Stabilization Programme and Union Budget, Economic and Political Weekly, 2005-2009.
[3] Chelliah, R. J. (1996). Towards Sustainable Growth: Essays in Fiscal and Financial Sector Reforms in India, OUP, New Delhi.
[4] Government of India, Ministry of Finance, Budget at a Glance, Various Issues.
[5] Government of India, Ministry of Finance, Economic Survey, Various Issues.
[6] Government of India, Ministry of Finance, Report of the Committee on Comprehensive Review of National Small Savings Fund, June 2011.
[7] Government of India, Ministry of Finance, Report of the Task Force on Implementation of the Fiscal Responsibility and Budget Management Act, 2003. Submitted in July, 2004.
[8] Government of India, Reserve Bank of India, Handbook of Statistics, 2013-14.
[9] Gupta, S. B. (1992). Black Income in India, Sage Publications, New Delhi.
[10] Jalan, B. (1992) India’s Economic Policy- Preparing for the Twenty First Century, Penguine Books, New Delhi, 21.
[11] Kalecki, M. (1971). Selected Essays on the Dynamics of the Capitalist Economy, Cambridge University Press.
[12] Kumar, A. (1988), (August 2-9). Budget 1988-89- Diminishing Returns of Unchanged Fiscal Policy Regime, Economic and Political weekly, 719-732.
[13] Kumar, A. (1994), (April 16-23), Growth Prospects Recede as Macro-Economic Situation Slips Out of Control, Economic and Political Weekly, 953-968.
[14] Kumar, A. (1999a). The Black Economy in India, Penguin Books, New Delhi.
[15] Kumar, A. (1999b), (March 20).The Black Economy: Missing Dimensions of Micro Policy Making in India, Economic and Political Weekly,
[16] Kumar, A. (2015), (June 26). Estimating the Size of Black Economy, Paper presented at the Seminar on Black Economy in Centre for Economic Studies and Planning (CESP), JNU
[17] Kumar, A. (2017). Understanding the Black Economy and Black Money in India, Aleph Spotlight, New Delhi.
[18] Kumar, A. and Sen (1993). Proposals for National Union Budget for 1993-94: An Alternative to the Fund-Bank Dictated Union Budget, Vani Publications, New Delhi.
[19] Mansoor, A. M (1988) The Budgetary Impact of Privatization in Blejer, Mario I and Chu, Ke-young (ed.), Measurement of Fiscal Impact Methodological Issues, IMF Occasional Paper No. 59.
[20] Rakshit, M. (2005). Budget Deficit: sustainability, Solvency and Optimality, In A. Bagchi (ed.) Readings in Public Finance. New Delhi: OUP.
[21] Rangarajan, C. (2009), (12 July), Rates May Harden by Fiscal End, Business Standard, Retrieved from http://www.business-standard. com/india/news/rates-may-harden-by-fiscal-end-rangarajan/370457/.

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Fiscal deficit, one of the widely acclaimed and internationally accepted measures of fiscal imbalance, is faced with a lot of conceptual and accounting issues in India. The definition of deficit has been changing and therefore there is no consistency in the official series of deficits published by the government of India. Since 1991, budgets were being framed in the context of the New Economic Policies (NEP) consisting of the Stabilization Policies and the Structural Adjustment Policies (SAP). While, the fiscal austerity in the form of expenditure reduction and revenue enhancement as a corollary to NEP has hardly worked out in India. However, the Central government has undertaken several measures to show a reduced fiscal deficit in India. One of the ways practiced was to implement some changes in the accounting practices over the years. This was by including some additional elements in the definition of deficit and excluding some other items. The second practice was to transfer the deficit of the Centre to other layers of the government. In a broad fiscal policy regime framework following Prof. Arun Kumar’s modified National Income Identity (1988), a total government or public sector comprising of the Centre, State/UTs and local-self-governments as well as the Public Sector Enterprises (PSEs) at the Centre and State levels. The problem of deficit shifting can be automatically avoided by taking the whole public sector into the analysis, which makes the empirical results on interrelationship between fiscal deficit and various macroeconomic variables more realistic and convincing. Still, there is a paucity of white economy data, because of the existence of substantial black economy in India. Its non-inclusion in analysis results in a partial understanding of the economy and often incorrect policy pronouncements. The need to incorporate the black economy is not simply an empirical matter, but a theoretical necessity. This paper in general tries to bring the aforementioned issues on data reliability, accounting flaws and missing variables into the discussion and attempt to correct the fudges in the official deficit series published by the government and also tries construct a compiled series of deficit for the public sector in India. The empirical section of the paper explains the significance of black economy as a variable to be included in the analysis to get better understanding of the economy.

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Department of Social Sciences, College of Arts and Applied Sciences, Dhofar University, Oman
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Department of Social Administration and Justice, University of Malaya, Malaysia
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Department of Geography, University of Malaya, Malaysia
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Dr. Haris Bin Abd Wahab
Department of Social Administration and Justice, University of Malaya, Malaysia
[email protected]
Dr. Mohana Dass Ramasamy
Department of Indian Studies, University of Malaya, Malaysia
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Dr. Ma Tin Cho Mar @ Noorjahan Bi Bi
Department of South East Asian Studies, University of Malaya, Malaysia
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Dr. Asbah Binti Razali
Department of Anthropology and Sociology, University of Malaya, Malaysia
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Dr. Azharudin Bin Mohamed Dali
Department of History, University of Malaya, Malaysia
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Department of Media Studies, University of Malaya, Malaysia
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    Editorial Note

    Editorial Dr. Lakshmi Narayanan

    Editor-in-Chief
    Dr. Lakshmi Narayanan
    Department of Social Sciences, College of Arts and Applied Sciences, Dhofar University, Oman
    [email protected]
    Editorial Advisory Board
    Dr. Mashitah Binti Hamidi
    Department of Social Administration and Justice, University of Malaya, Malaysia
    [email protected]
    Dr. Jillian Ooi Lean Sim
    Department of Geography, University of Malaya, Malaysia
    [email protected]
    Dr. Haris Bin Abd Wahab
    Department of Social Administration and Justice, University of Malaya, Malaysia
    [email protected]
    Dr. Mohana Dass Ramasamy
    Department of Indian Studies, University of Malaya, Malaysia
    [email protected]
    Dr. Ma Tin Cho Mar @ Noorjahan Bi Bi
    Department of South East Asian Studies, University of Malaya, Malaysia
    [email protected]
    Dr. Asbah Binti Razali
    Department of Anthropology and Sociology, University of Malaya, Malaysia
    [email protected]
    Dr. Azharudin Bin Mohamed Dali
    Department of History, University of Malaya, Malaysia
    [email protected]
    Dr. Hasmah Binti Zanuddin
    Department of Media Studies, University of Malaya, Malaysia
    [email protected]

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