The consolidated fund of India, through which the government channels all receipts and payments, was consistently in the red right through the nineties and emerged in surplus only in the closing year of 1999-00 because of the change in the way of dealing with small savings.
As if to compensate for this, the total liabilities, internal and external, of the Union government to GDP went down from 65.41 per cent in 1991-92 to 57.23 per cent in 1999-00. This was made possible by a negative net inflow of external debt in the last five years, that is, net repayment brought down the total external debt burden. But the burden of internal debt went up over the decade, from 27.08 per cent of GDP in 1990-91 to 36.5 per cent in 1999-00.
The opportunity provided by the ending of the nineties decade and the fact that it was also the decade of reforms was used by the office of the Comptroller and Auditor General of India to convert the annual audit for the year 1999-00 into a study of the entire decade.
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Through this decade of reforms (1990-2000), the Union government's finances, as reflected in the fiscal situation, declined in almost every respect. Over and above the quantitative decline, the efficiency with which the central government does its spending remained poor, thus letting it derive less of a bang for every buck it spends than it could have.
The inefficiencies in spending come from the continuing prevalence of the following practices: a rash of expenditure in March leading to hasty decisions; implicit subsidies making the budget process more opaque, procedural inefficiencies like expenditure without sanction; and unauthorised appropriations resulting from injudicious reappropriation without prior approval.
In fact, the sanctity of the whole budgetary exercise has been brought into question by the huge variations that have taken place between budget estimates and actuals. Revenue and fiscal deficits have been consistently underestimated and receipts overestimated, with the last year of the decade (1999-00) being a notable exception. Revenue expenditure has been generally overestimated and capital expenditure underestimated.
The difference between the estimate and actual fiscal deficit as a percentage of actual reached a record 38.66 per cent in 1993-94 and was 21.71 per cent in the last year of the decade 1999-00.
The tax-GDP ratio declined from 10.12 per cent of GDP in 1990-91 to 8.78 per cent in 1999-00, indicating the declining adequacy of resources with which the central government could discharge its essential functions and provide high merit goods.
What is more, the autonomy with which the government can spend what is available also declined. The ratio of voted expenditure to total disbursements which measures the freedom that Parliament has in setting expenditure priorities, declined from 39.82 per cent to 35.68 per cent. The ratio of what is spent on other than interest payments and pensions to total expenditure also declined by a full 10 percentage points, from 82.75 per cent to 72.75 per cent.
All this increased the vulnerability of central finances. When the ratio of non-asset creating revenue deficit to fiscal deficit increases, liabilities are added without creating assets which represent capacity for repayment. This ratio went up by as much as 13 percentage points, from 40.4 per cent to 59.43 per cent.
Over the decade the government has also paid a higher effective interest rate on its borrowing, going up by 2.59 percentage points, though the effective interest rate is likely to go down in the current year.