Tuesday, April 01, 2014

Jugglery in Public Finance

It is well known that public finance, unlike personal finance, is open to many sleights of hand. P.Chidambaram has proved to be a master magician, an alchemist who does not need even base metals to come up with gold.

The Budget Estimate for fiscal deficit for 2013-14 was 4.8% of GDP. It was revised to 4.6% by Chidambaram to prove his fiscal adroitness. In the eleven-month period ended 28th February, the fiscal deficit was 114% of revised estimate (in terms of actual amount). In a logical sense this means that GDP should rise by atleast 14% over and above what was budgeted if the fiscal deficit target of 4.6% is not to be exceeded. Obviously, this is not to be.

So what is the proposed magic? It is the simple trick of postponing March expenditure to April and to take credit in March for whatever income is normally due next year. Public Sector navratnas and banking cash cows have been 'advised' to release generous interim dividends.

Managing personal finances is difficult. Managing the nation's finances seems to be child's play!

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