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Business News/ Opinion / Columns/  21st century India needs a real-time fiscal data portal

21st century India needs a real-time fiscal data portal

It is the next necessary step in transparency to assure us a true picture of the state of India’s finances

Photo: HT

Soon after leaving North Block, former chief economic adviser to the finance ministry, Arvind Subramanian aired a warning about the creative accounting tricks used in the annual budget-making exercise. “Firms must report their results according to established accounting principles," Subramanian wrote in his book Of Counsel: The Challenges of the Modi-Jaitley Economy. “But things are different when it comes to the government. Singer-songwriter Paul Simon once told us that there are 50 ways to leave a lover. Similarly, governments have more than 50 ways—policies and accounting—to meet a deficit target… The more complicated the fiscal arrangements, as they are in India because of different layers of ‘off-budget’ activities and incurring of contingent liabilities, the more the scope for creative accounting."

For anyone trying to make sense of the government’s annual financial statement, such accounting tricks made it difficult to gauge the precise extent of the fiscal deficit. Analysts were forced to use a number of assumptions to derive the ‘true’ fiscal deficit from the reported figures.

Over the past couple of years, there has been a welcome shift towards more honest budgeting. The pandemic shock caused a fiscal crisis, but it also provided an opportunity for transparent reporting. Since the fiscal deficit was expected to shoot through the roof anyway, the finance ministry decided to come clean on the state of finances.

The next step would be to make government finances more transparent and accessible to India’s citizens and investors. A real time fiscal data portal that tells us how funds are flowing across the three tiers of government—Centre, state and local governments—would be an invaluable resource to understand the Indian economy.

Such a portal would allow India’s citizens to monitor fund flows minutely. Greater scrutiny of public finances would in turn improve the quality of reporting, driving up the efficiency of public spending. Such a portal would also allow government vendors and related businesses to plan their purchases and inventories better. Financial institutions would be able to estimate borrowing needs of different levels of government accurately.

At the moment, fiscal data in India is fragmented, incomplete, and often comes with lags. This makes it difficult to analyse government finances across the country in a comprehensive way. To cite an example, it is important to net out intergovernmental flows to avoid double counting if we want to understand the aggregate government spending and its impact on the economy. If local body grants provided by the Union government to states are shown as entries in the budgets of both the Union and states, it will overstate government spending, since the actual spending is being done only by the third tier of government. To make matters worse, the amount shown as a transfer by the higher tier (Union or state government) often does not match the amount shown as receipt by the lower tier (state or local government). The reconciliation happens much later, by when the data is only of academic interest.

Highlighting the gaps in the availability of fiscal data, a 2018 committee on fiscal statistics appointed by the National Statistical Commission (NSC) had argued for a complete overhaul of India’s fiscal database. “Fiscal data are getting generated all the time," the NSC committee report said. “But their compilation, classification into suitable categories and eventual publication on a website or in printed form is replete with instances of heterogeneous time lags."

The report rightly pointed out that the time lag issues make aggregate data compilation incomplete or inconsistent. Given that many parts of the fiscal system have been digitized, it is possible to build a comprehensive real-time fiscal data warehouse, it argued.

Over the years, a number of Finance Commission reports have advocated the setting up of an apex fiscal council to aggregate fiscal data. Some economists have argued that the Finance Commission itself should be established as a permanent body to perform such a role. Such a body can help clean up public finance statistics and provide a more accurate view of the flow of public funds across the country.

While gaps and discrepancies in the reporting of Union government finances garner most attention, the problems are often more acute at the sub-national level.

The NSC committee found that local government accounts were simply unavailable for most states. The National Statistical Office (NSO), which uses this data to compile India’s national accounts, was able to gather fiscal data for local bodies for only 11 states that year. And even for these states, the data had several gaps. Data for rural local bodies (panchayati raj institutions) was scarce across states. Data on urban local bodies tends to be in better shape, but remains incomplete, as a recent Reserve Bank of India (RBI) report on municipal finances pointed out.

There are other glaring data gaps. Most states do not maintain reliable and up-to-date data on off-balance sheet spending and contingent liabilities (including liabilities on account of state level public enterprises). Different states also tend to have different budgetary classifications, making inter-state comparisons difficult.

A federal fiscal organization can help bring about more consistent reporting standards. A transparent fiscal data portal that provides granular real-time data can bring about economy-wide efficiency gains, and pre-empt fiscal crises in the future.

Pramit Bhattacharya is a Chennai-based journalist. His Twitter handle is pramit_b

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