Set the G20 pace on plugging public finance data gaps
At the G20 Leaders’ Summit in Bali, India affirmed that ‘data for development’ will be integral to its G20 presidency
At the G20 Leaders’ Summit in Bali, India affirmed that “data for development” will be integral to its G20 presidency. More recently, India emphasized that the strategic use of data for governance and public service delivery, especially in its aspirational districts, is its key focus.
This brings fiscal data to the fore. The scale of the fiscal response to the covid crisis makes sound fiscal reporting and transparency critical. Governments must monitor their fiscal position reliably in a context of heightened uncertainty, to instil market and public confidence that state resources are being used effectively, and outline a medium-term strategy for the risks associated with the response. This is particularly so where public borrowings exceed net household financial savings, which risks crowding out private investment.
Many countries face information gaps that impede their ability to fully grasp the impact of policies. And without comprehensive and internationally comparable data to monitor progress, it is difficult to know what works, and where corrections are needed. All this makes the full availability of fiscal data across all levels of government a public good.
What needs to be done: Fiscal reporting practices in India are still behind most peer G20 economies, implying that policymakers lack key data to anchor 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 the general government, is critical. But India is not there yet, being among the G20 countries that do 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 managed to produce consolidated general government data within a few years by setting up a dedicated IT system and smart incentives for states to share their fiscal data on time.
There are several factors embedded in India’s public financial management (PFM) system that contribute to data gaps in Indian numbers. The system has a complex history that dates back to the colonial era, when it had little transparency and citizen oversight. Since independence, the system has undergone significant reforms and changes. However, the Constitution covers only a basic framework and many operational budgetary reforms have no specific legal framework governing them; documentation requirements and budget timelines are not legally defined. Key practices, accounts and classifications have stayed unchanged, and the use of public accounts that conceal expenditures and result in a misleading picture of fiscal activity.
The 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, duplications of effort, and related inefficiencies that create data gaps.
Inconsistent fiscal definitions and targets: The Union’s definitions of deficit and debt in its fiscal rule are mutually inconsistent, and the GG debt target is not consistent with the wider definition of ‘Central Government Debt’ in the updated FRBM Act. Many states do not have a wider definition of debt and deficit to cover extra budgetary expenses.
Lack of standardization: This is seen in the way different agencies and levels of government collect and report numbers.
Low use of technology: India’s PFM system still relies heavily on manual processes and the absence of a dedicated platform for all government units hampers streamlined financial management. This can lead to errors.
Weak transparency and accountability: This is another contributor to gaps.
External evaluation: At the Centre and in states, external assessment and evaluation mechanisms for fiscal plans, performance and macro forecasts are not fully in place.
Timelines: The swiftness of audited annual financial statements could be improved. Report delays must end.
There’s progress being made: In the July 2019-20 Budget, the Union finance minister introduced Statement 27 on Extra Budgetary Resources; it disclosed the borrowings of government agencies that funded central schemes and whose repayment burden was on the government. In subsequent budgets, the finance minister enhanced the scope and coverage of the statement, in part, by including loans extended by the Centre to the Food Corporation of India.
Agenda ahead: Most states are well behind the standards achieved by the Centre. Some, like Telangana and Kerala, have been in the spotlight for fiscal strains borne by their economies, rendered more severe by off-budget borrowings. In March 2022, the Centre announced that it will retrospectively include states’ off-budget borrowings within their net borrowing ceiling under Article 293.
PFM reforms at the sub-national level should be consistent with reforms at the Union government level in terms of a clear framework that ensures consistent and well defined targets and accounting standards, timely and reliable reporting of sub-national fiscal operations, and strengthens automatic mechanisms for deviation correction and sanctions for non-compliance.
Also helpful would be the support of G20 leaders for a new Data Gaps Initiative to make fiscal statistics more detailed and timely. Fiscal data needs to be broader, more detailed and timely, and must include the translation of state fiscal data into a GFS template.
Anoop Singh is a distinguished fellow at the Centre for Social and Economic Progress, and a former member of the 15th Finance Commission
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess
First Published:4 Jan 2023, 10:49 PM IST
- Top Gainers
- Top Losers
- 52 Week High