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(vi) Other Liabilities of the Government
Basically, this includes all the repayment liabilities of the government on the items of the Other Receipts. The level of liabilities depends on the fact as to how much such receipts were made by the governments in the past. The amount of payment liabilities in the year also depends on the fact as to which years in the past the governments had other receipts and for what duration of maturity periods. As for example, the PF liabilities were not an item of such liabilities for almost first three decades after Independence. But once the government employees started retiring, it went on increasing. Future India (especially 1960s and 1970s) saw expansion of the PSUs and excessive employment generation in them (devoid of the logic of labour requirement). We see the PF liabilities expanding extensively throughout the 1990s—the governments had been under pressure to manage this segment either by cutting interest on PF or at present trying to make it a matter of market economy. Same thing happened with the element of pension and we have been able to devise a market mechanism for it once pension reforms took place and the arrival of a pension regulatory authority for the area.
There is no such term in public finance or in economics as such. But in practice one usually hears the use of the term capital crunch, scarcity of capital in day-to-day economic news items. Basically, the government in the news is facing the problem of managing as much funds, money, capital as is required by it for public expenditure. Such expenditure might be of revenue kind or capital kind. Such difficulties have always been with the developing
economies due to their high level requirement of capital expenditures. Had there been a term to show this situation, it would naturally have been Capital Deficit.
When balance of the government’s total receipts (i.e., revenue + capital reeipts) and total expenditures (i.e., revenue + capital expenditures) turns out to be negative, it shows the situation of fiscal deficit, a concept being used since the fiscal 1997–98 in India.9
The situation of fiscal deficit indicates that the government is spending beyond its means. To be more simple, we may say that the government is spending more than its income (though in practice all receipts of the government are not income. Basically, receipts are all forms of money accruing to the government, be it income or borrowings).
Fiscal deficit may be shown in the quantitative form (i.e., the total currency value of the deficit) or in the percentage form of the GDP for that particular year (percentage of GDP). In general, the percentage form is used for domestic or international (i.e., comparative economics) studies and analyses.
India has been a country of not only regular but higher fiscal deficits. Moreover, the composition of its fiscal deficit has been more prone to criticism (we will see this in the forthcoming sub-title ahead).
The fiscal deficit excluding the interest liabilities for a year is the primary deficit, a term India started using since the fiscal 1997–98.10 It shows the fiscal deficit for the year in which the economy had not to fulfil any interest payments on the different loans and liabilities which it is obliged to—shown both in quantitative and percentage of GDP forms.
This is considered a very handy tool in the process of bringing in more transparency in the government’s expenditure pattern. Any two years for example might be compared and so many things can be found out clearly such as, which year the government depended more on loans, the reasons
behind higher or lower fiscal deficits, whether the fiscal deficits have gone down due to falling interest liabilities or some other factors, etc.
The part of the fiscal deficit which was provided by the RBI to the government in a particular year is Monetised Deficit, this is a new term adopted since 1997–98 in India.11 This is shown in both the forms—in quantitative as well as a percentage of the GDP for that particular financial year.
It is an innovation in the fiscal management which brings in more transparency in the government’s expenditure behaviour and also in its capabilities concerning its dependence on market borrowings by the RBI. Basically, every year both central and state governments in India had been depending heavily on market borrowings (internal) for its long-term capital requirements. Market borrowings of the government are done and managed by the RBI. Besides, the RBI is also the primary customer for government securities—yet another means of the government to raise long-term capital. This has been a major area of fiscal concern in India. After the process of fiscal consolidation was started by the government by the early 1990s, we see a visible improvement in this area. This term is itself arrived as the part of fiscal reforms in India (we will visit the issue of fiscal consolidation in India in the coming pages).
When the budgetary proposals of a government for a particular year proposes higher expenditures than the receipts, it is known as a deficit budget. Opposite to this, if the budget proposes lesser expenditures than the receipts, then it is a surplus budget.12
In practice, governments the world over usually do not present a surplus budget as it symbolises government’s lower concerns towards development. But at times as a political weapon a government might come out with such a budget (for example the Uttaranchal Budget for 2006–07 was a surplus budget). How can a government propose for a surplus budget in a developing
state when even developed countries still need development and are going for deficit budgets? The Union Budget in India had never been presented as a surplus budget.