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.