It is sad to think that these considerations were not recognised by the Committee or the subsequent framers of the bill, whose concern seems to have been essentially to impose those measures which are viewed as necessary to placate or impress finance capital, both domestic and international. The only honourable exception to this within the Committee appears to have come from the unlikely source of the office of the Comptroller and Auditor General of India.
 
The C&AG's  representative had to make the obvious point that "no fresh legislation of the FRA type was required since a ceiling on borrowings by the Government could be prescribed by law under Article 292 of the Constitution, or through annual legislation as part of the budget, and other medium or long term fiscal measures could be declared by Government in a policy paper." This office was also forced to remind the rest of the Committee of the final authority of Parliament in our democracy, even and especially in matters relating to the public fisc, and to point out that "setting up a Fiscal Management Review Committee through statute (as proposed in the Report) ... goes against the basic structure of the Constitution."
 
The undemocratic nature of the proposed legislation is hinted at by the office of the C&AG. It is further disturbing to realise that such legislation could be framed in a macroeconomic context of slowdown which urgently demands significant public intervention to lift industry out of recession, to clean up the mess with respect to public foodgrain stocks and provide more food to those in need of it and through productive public employment schemes, and to address the major problem of decelerating aggregate employment generation.
 
The Committee uses the increasing trends in government deficits - described in Chart 1 - to justify its concern with fiscal consolidation and control. But one major reason for the large deficits is precisely the much greater share taken up by interest payments, which is shown in Chart 2. In the last five years, not only have interest payments reached historically high levels as percent of GDP, but they amounted to around 30 per cent of total government expenditure and more than 36 per cent of revenue expenditure.

Chart 1 >> Click to Enlarge

Chart 2 >> Click to Enlarge

It is a mistake to believe - as is continuously suggested by Government and repeated in the Committee's Report, that this is due entirely to the burden of past debt. A substantial role has also been played by financial liberalisation measures which have raised the cost of Government borrowing and caused both the interest payments and the total public debt to be much higher than they otherwise would have been. This is particularly clear from Chart 3, which shows that public debt as a share of GDP actually declined in 1996-2001, even though interest payments continued to rise to their highest ever levels.

Chart 3 >> Click to Enlarge
 
Meanwhile, of course, capital expenditure by the Central Government continues to decline as a share of GDP, as evident from Chart 4. And this decline is not just over the past ten years; it has been especially marked during the tenure of the BJP-led government, which has been remarkable in suppressing plan and capital expenditures well below even their budgeted outlays in each year in power.

Chart 4>> Click to Enlarge
 
This trend continues into the current year, as can be seen from Chart 5. Thus, over April-December 2000, while revenue receipts increased by more than 15 per cent in current prices over the corresponding period in the previous year, both plan and capital expenditures have increased only marginally in current prices. Given the rate of inflation, this implies that they have actually fallen in constant price terms.

Chart 5>> Click to Enlarge
 
The most misleading thing about such Committee Reports and such legislation, is that they present their assumptions and conclusions as technocratic necessities rather than blatant political choices. But in fact, such decisions about overall expenditure, its distribution and deficit control, are deeply political and reflect the choice of favouring certain economic groups in society - especially finance - over others.
 
Indeed, the act as framed does seem to recognise certain political realities. For example, Section 10 of the Act provides immunity to the Central government and its officers for anything done in good faith under the Act. And, most blatantly, the Act leaves the current Finance Minister, its mover, almost totally outside the discipline it purports to impose. Thus, sub-section (1) of Section 5 imposes the commandment that the "The Central Government shall not borrow from the Reserve Bank". But sub-section 5(3) says "Notwithstanding anything contained in sub-section (1), the Reserve Bank may subscribe to the primary issues of the Central Government securities during the financial year beginning on the 1^st day of April. 2001 and subsequent two years" (emphasis added).
 
Similarly, section 12, the final section of the Act reads: "If any difficulty arises in giving effect to the provisions of this Act, the Central government may, by order published in the Official Gazette, make such provisions not inconsistent with the provisions of this Act as may appear necessary for removing this difficulty: Provided that no order shall be made under this section after the expiry of two years from the commencement of this Act" (emphasis added).  In other words, the Act makes itself practically inoperative for the next two years and would thereafter only hobble governments which are unable to amend the relevant sub-sections. This government therefore wants to win kudos from international investors for its supposed fiscal sobriety, while passing on the real discipline and costs of such control to future governments. It is not only based on poor economics, it is also deeply undemocratic in denying future governments the capacity to respond to felt social requirements.
 
The essentially political and distributive features of such legislation which is supposedly "neutral" in being determined only by objective economic realities, becomes very clear in a story narrated by the well-known American economist Joseph Stiglitz. When he was Chairman of the Council of Economic Advisers to the President during Clinton's first term, there was a motion moved by a Republican legislator to provide policy independence to the Federal Reserve, the United States' central bank. The reasons proffered were very similar to those cited in the Report being considered here. Stiglitz persuaded President Clinton to announce that this would be made an election issue. Within a matter of a few days, the proposed legislation was withdrawn, as the Republicans realised that voters would react against a measure that would reduce democratic accountability of an institution with crucial economic clout to affect economic activity and jobs.
 
Stiglitz ended his story with the clear statement that monetary and fiscal matters are essentially about politics, because they determine income distribution outcomes. It is important that this message gets across equally clearly to our voters and political parties as well, so that such an attempt, as is being made in this proposed legislation, to privilege the financial class over the interests of all other citizens cannot succeed.