In a few weeks, India's finance minister will present what's called an "interim budget" - accounts of year gone by, as well as his plans for year to come.
It isn't supposed to be a regular budget because government faces reelection in a few months; convention is that next finance minister gets to make final decisions about expenditure after a new government is formed.
Hoping for a second term, Prime Minister Narendra Modi is expected to lay out ambitious spending plans anyway.The number that will draw most attention, therefore, is fiscal deficit: Will India stick to its plan to reduce deficit below 3.3 percent of gross domestic product And will it make its target for year gone by Modi has a reputation for fiscal prudence, so expectation is that somehow or other his Finance Ministry will get numbers in line.The problem is that number we'll be given is likely to be very deceptive.
That's because it won't reflect what it's supposed to reflect: degree by which government is overspending.
That, in turn, is because India's federal government - according to its own auditor, among others - is concealing its expenditure in half a dozen unprecedented ways.In a report presented to India's Parliament earlier this month, Comptroller and Auditor General (CAG) argued that cost of many subsidies, for example, was being massively understated in budget.
Payments to Indian farmers to make fertilizer affordable were being routed through "special banking arrangements" - essentially a loan from state-owned banks to cover outstanding subsidy payments.
Meanwhile, cost of buying farmers' produce, borne by state-run Food Corporation of India, is being paid out of what's called "national small savings fund," which administers various government-run savings schemes.The pattern is repeated in power sector and railways, in both of which new investment is being paid for indirectly, through borrowing by government-run agencies.
As CAG says, using "such off-budget financial arrangements increases cost of subsidies, and understates annual subsidy expenditure and prevents a transparent depiction of financial indicators for relevant year." In other words, its auditor has accused Indian government of blatantly fudging numbers.The misuse of small savings fund is particularly galling.
This is not even public-sector earnings - it is depositors' hard-earned cash, which they've given to government to hold on their behalf.
Instead of investing it responsibly, government is giving it to bankrupt Food Corporation of India Worse, it's handing out cash to India's chronically loss-making state-owned airline, Air India Ltd.
That's hardly a safe or sensible destination for a poor family's savings.This isn't only way in which government has sought to conceal its expenditure.
For example, it's forcing various public-sector enterprises to buy others - essentially a way to get cash from company in question into government's own kitty.
Some of these forced mergers make very little sense.
For example, government is selling Rural Electrification Corporation Corp.
Ltd., which focuses on creating generation assets, to Power Finance Corp.
Ltd., which finances overall electricity infrastructure.
PFC has 14,000 megawatts worth of non-performing assets on its books; surely it should be using its cash to deal with that, rather than transferring it to government Unsurprisingly, both markets and ratings agencies have turned bearish on companies.Other public-sector companies are being made to conduct share buy-backs - especially those in various natural resource-intensive sectors such as petrochemicals and mining.
Again, that shifts cash from these companies to Finance Ministry - and reduces amount available to them for investment.
It means populist spending is happening instead of investment - exactly kind of decision that should make fiscal deficit look worse.
Except this makes deficit look deceptively better.Fiscal deficits are supposed to be more than a measure of how responsible a government is with tax money.
More importantly, they're a guide to whether government borrowing is squeezing out private sector as a destination for savings.
If government spending - and borrowing - is going to be concealed in this manner, then deficit figures aren't going to be useful or relevant in any way.If Modi wants to retain a reputation as a fiscal hardliner, he's going about it wrong way.
HSBC's analysts have already noted that their measure of net supply of government paper has gone up sharply, from 6.6 percent in 2015-16 to 8.2 percent in 2017-18.
And that doesn't take into account a lot of other off-budget borrowing that's been scaled up recently.The government would be far better advised to tell truth about its profligacy.
Populism costs money.
And, just because budget numbers aren't telling you how much doesn't mean it costs any less.(Mihir Sharma is a Bloomberg Opinion columnist.
He was a columnist for Indian Express and TheIndianSubcontinent, and he is author of Restart: The Last Chance for Indian Economy.)Disclaimer: The opinions expressed within this article are personal opinions of author.
The facts and opinions appearing in article do not reflect views of TheIndianSubcontinent and TheIndianSubcontinent does not assume any responsibility or liability for same.(Except for headline, this story has not been edited by TheIndianSubcontinent staff and is published from a syndicated feed.)