At the G20 leaders’ summit in Bali, India affirmed that “data for development” would be an integral part of its G20 chairmanship. Recently, India emphasized that the strategic use of data for governance and public service delivery, especially in its aspirational districts, is its main focus.
This brings out the fiscal figures. The scale of the fiscal response to the Covid crisis makes sound fiscal reporting and transparency critical. Governments must robustly monitor their fiscal position in the context of growing uncertainty, instill confidence in the market and public that state resources are being used effectively, and a medium-term response to risks associated Outline the strategy. This is particularly so when public borrowing exceeds net household financial savings, which risks reducing private investment.
Many countries face information gaps that hinder their ability to fully understand the impact of policies. And without comprehensive and internationally comparable data to monitor progress, it is difficult to know what works and where improvements are needed. All this makes the full availability of fiscal data at all levels of government a public good.
What needs to be done: Fiscal reporting practices in India still lag behind most peer G20 economies, meaning policymakers lack critical data to underpin economic policies. New Delhi’s commitment under the G20 Data Gaps Initiative to compile and disseminate internationally comparable Government Finance Statistics (GFS) on a quarterly basis, covering general government, is significant. But India is not there yet, being one of the G20 countries that does not produce or report full General Government (GG) data in line with GFS standards. This needs to be fixed.
Lessons can be drawn from Brazil, a large federal emerging market, which has been able to produce consolidated common government data within a few years by setting up a dedicated IT system and smart incentives for states to share their financial data in a timely manner. Have achieved success.
There are several factors embedded in India’s Public Financial Management (PFM) system that contribute to data gaps in the Indian numbers. The system has a complicated history dating back to colonial times, when there was little transparency and civilian oversight. Since independence, the system has undergone significant reforms and changes. However, the Constitution only covers a basic framework and many operational budgetary reforms have no specific legal framework governing them; Documentation requirements and budget deadlines are not legally defined. Key practices, accounts and classifications have remained unchanged, and the use of public accounts hides expenditure and results in a misleading picture of fiscal activity.
Main issues are:
complex and fragmented structure: India’s PFM system has multiple layers of government and multiple agencies responsible for different aspects of financial management. This has led to comparability and classification problems, duplication of efforts, and associated inefficiencies that create data gaps.
Inconsistent financial definitions and goals: The definitions of deficit and debt in the Union’s own fiscal rules are inconsistent, and the GG debt target is not in line with the broad definition of ‘central government debt’ in the updated FRBM Act. Many states do not have a broad definition of debt and deficit to cover extra-budgetary spending.
lack of standardization: This is seen in the way numbers are collected and reported by different agencies and levels of government.
less use of technology: India’s PFM system still heavily relies on manual processes and the absence of a dedicated platform for all government entities hinders streamlined financial management. This may result in errors.
Weak transparency and accountability: This is another contributor to the lag.
external assessment: At the Center and in the States, external evaluation and assessment mechanisms for fiscal plans, performance and macro forecasts are not fully in place.
time limit: The sharpness of the audited annual financial statements can be improved. Delay in reporting should end.
Progress being made: In the July 2019-20 Budget, the Union Finance Minister introduced Statement 27 on Extra Budgetary Resources; It exposed the borrowings of government agencies that funded central schemes and the burden of repayment was on the government. In subsequent budgets, the finance minister broadened the scope and coverage of the statement, by including loans given by the Center to the Food Corporation of India.
Agenda ahead: Most of the states are far behind the standards achieved by the Centre. Some, such as Telangana and Kerala, have been in the news for the fiscal stresses borne by their economies, made more severe by off-budget borrowings. In March 2022, the Center announced that it would retrospectively include off-budget borrowings of states under Article 293 within their net borrowing limits.
PFM reforms at the sub-national level should be consistent with reforms at the central government level in the context of a clear framework that ensures consistent and well-defined goals and accounting standards, timely and reliable reporting of sub-national fiscal operations , And strengthen the automatic mechanism. Deviations for rectification and sanctions for non-compliance.
G20 leaders’ support for a new Data Gap Initiative to make financial data more comprehensive and timely would also be helpful. Financial data needs to be comprehensive, more detailed and timely, and should include translation of state financial data into the GFS template.
Anoop Singh is a Distinguished Fellow of the Center for Social and Economic Progress and a former member of the 15th Finance Commission.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.