Unfortunately, the size of the off-budget liability has grown so big that observers no longer accept this fiscal window-dressing. The fertiliser subsidy has been estimated by the minister for chemicals and fertilisers, Ram Vilas Paswan, at over Rs 90,000 crore, about thrice what the Budget has provided. The scope of the loan waiver has been expanded to accommodate a further Rs 11,000 crore from the Rs 60,000 crore indicated in the Budget speech. And, under-payments to oil companies has had them gasping for financial air. Domestic prices have been raised as a result, but the gap is still wide and the bond issuances will continue. Analysts have long since abandoned the Budget numbers and are now estimating the true fiscal deficit of the central government in the range of 7 to 8 per cent of GDP. Add to this the impact on state government finances of higher salaries and the combined national fiscal deficit could well be in the 9-10 per cent of GDP range, taking the economy right back to the days before the FRBM was enacted. It is exactly this fiscal burden that prompted the legislation in the first place.
Mr Chidambaram and his advisors cannot be unaware of this rather rapid deterioration in government finances. By clinging to the mythical 2.5 per cent number, they are doing nobody any good. The political class, always tempted to delude itself, is quite capable of accepting that the fiscal situation is under control because the oil and fertiliser bonds are somehow different from other government debt. Unless politicians are quickly disabused of this false notion, they will go on demanding increases in subsidies, causing further damage. It is high time that Mr Chidambaram demonstrated his commitment to the spirit of fiscal discipline and not just the rather malleable letter of the FRBM law.