li inan e in ndia 18.15
there was a lack of profit and loss analysis; the thirD PhAse (1991 onWArDs)
as the PSUs had no connection between This started with the initiation of the economic
their need of labour force and the existing reforms process under the conditionalities put
labour force. Ultimately, the responsibility forth by the IMF (controlling fiscal deficit was
of profit or loss did not remain the onus of one amongst them). As the economy moved from
the officers, thus making them centres of government dominance to market dominance,
intentional losses and an institutionalised things needed a restructuring and public finance
centre of corruption; etc. also needed a touch of rationality.
(iv) The governments have failed on both
the fronts—checking population rise IndIan fIscal sItuatIon: a summary
and mass employment generation—the In December 1985, the Government of India
burden of different subsidies went on presented a discussion paper in the Parliament
increasing making them unmanageable titled ‘Long-Term Fiscal Policy’. It was for the
and highly illogical. Self-employment first time in the fiscal history of India that we see
programmes could not pick up, or a long-term perspective coming on the fiscal issue
better said, it was politically suitable to from the government. This also included the policy
go for piece-meal wage-employment of government expenditure. The paper was bold
programmes with different names. enough to recognise the deterioration in India’s
fiscal position and accepted it among the most
(v) Planned development remained highly
important challenges of the eighties—the paper set
centralised and devoid of any place for specific targets and policies to set the things right.
local aspirations—frustrations of masses This paper was followed by a country-wide debate
started showing up in the form extremist on the issue and it was in 1987 that the government
and radical organisations raising their came ahead with two bold steps in the direction—
heads creating a law and order problem (i) a virtual freeze was announced on
and excessive expenditure on them. The government expenditure, and
outcome was a burdened police force and (ii) a ceiling on the budgetary deficit.
lagging judicial set up.
The above steps had a positive impact on
(vi) The plan expenditure which governments the situation but it was temporary as since mid-
were going for were through investments 1988 the situation again started deteriorating.
in the PSUs which were not committed The BoP crisis at the end of 1990 was generated
to profit motive, deficit financing for the partly by the alarmingly high fiscal deficit30 and
PSUs was not based on sound economics.
30. The proximate cause of the payment crisis in the
Majority of the plan expenditure in a mainstream perspective, was faulty macroeconomic
sense turned out to be non-economic, policies, specially large fiscal deficits of the government
i.e., non-plan expenditure at the end. during , deficits that spilled over in country s
current account of the balance of payment. (see
Due to the above-given reasons, it was tough ihir a shit, he icro economic Ad ustment
to say whether it was sound to go for huge fiscal rogramme A Critique , Economic and Political
Weekly 26(34) (August), quoted by Mihir Rakshit,
deficits in India.29 ‘Some Microeconomics of India’s Reform Experience’
in Kaushik Basu (ed.), India’s Emerging Economy:
29. This was the general feeling among experts, policymakers Performance and Prospects in the 1990s and Beyond
and the IMF, alike. (New Delhi: Oxford University Press, 2004), p. 84.