A debate on development

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Sustainability of India's commendable macroeconomic performance lies in India's resurgence on social development parameters. The strong macroeconomic fundamentals has clearly strengthened investor confidence in the short to medium-run, but the country's performance on social parameters that impact the long run growth could be a sharp contrast.

Against this backdrop, the debate between North Block and the Planning Commission surrounding relaxation of fiscal targets set by Fiscal Responsibility and Budget Management Act (FRBMA) of 2003 has surfaced again.

The Planning Commission, in its draft 11th Plan, has noted that India faces significant challenges like infrastructure constraints, rising income inequalities and regional growth imbalances intense amongst states. Therefore, it has proposed, amongst other things, that various departments and programmes of the Government should be allowed double its spend in the five years up to 2012.

A large portion of such expenditure may be directed towards social programs.

In view of this, the Commission further states that maintaining zero-revenue deficit would substantially limit the Government's ability to fund flagship schemes and thus the FRBMA targets should be revised accordingly. The Planning Commission highlights urgency to step-up social sector spending highlighting the increasingly poor citizens in the five states UP, Bihar, Maharashtra, Uttarkhand and Orissa.

The FRBMA does not specify any legal proceeding or penalty for non "� adherence to the targets. It makes MOF accountable to the Parliament and goes on to say that in case where owing to unforeseen circumstances, any deviation is made in meeting obligations, the Finance Minister is supposed to make a statement in both Houses of Parliament explaining the reasons for such deviation and the nature and outcome of such a deviation on actual or potential budgetary figures.

In addition, the Finance Minister needs to outline the remedial measures that the Government proposes to take in curing the situation. Amendment to FRBMA is not new as earlier, at the time of legislation, the Finance Minister moved an Amendment to the Act to shift target year to 2008-09 (original being 2007-08), through a Parliamentary proceeding.

Theoretically, it is not unreasonable for the Planning Commission to opine on the relaxation of FRBMA targets. However, there are more intricate practical issues that need to be considered if one hopes for a suitable resolution between North Block and Yojana Bhawan.

Both institutions work with similar objectives of ensuring a balanced, sustainable growth and have previously been at loggerheads on issues. An amicable solution has mostly been reached on these age-old debates, but how far they have benefited social development cause is questionable.

Historically, we have seen the Planning Commission flagging pertinent issues on social development and MOF announcing numerous schemes and allocating funds for such development needs. A significant proportion of such schemes have not yielded the desired outcome and results and India has continuously lagged behind on social development parameters.

Undoubtedly, much of India's resurgence on the macroeconomic front is attributed to its adherence to FRBMA targets. Trends in fiscal and revenue deficits after legislating FRBM law have shown significant improvements in attaining fiscal consolidation.

Further, fiscal situation of several states also showed considerable improvement, which, in fact, was even better relative to the performance of the centre. India's gross tax revenue has seen substantial increase over time and the Government has also initiated efforts to keep the debt-to-GDP ratio under check by establishing Debt Management Office in the last year's budget.

While India hails IMF and OECD for acknowledging macroeconomic performance, one cannot ignore how some of the other acclaimed institutes view us on social indicators.

The recently published Global Competitiveness Report by the World Economic Forum rates India's infrastructure supply amongst the poorest in the world and considers it as being the primary reason for India's low rank. India has fallen six places in this year's ranking and has been ranked 48th amongst 131 countries.

The Planning Commission is perhaps making a valid point and has rightly utilised their capacity to flag issues; however, relaxation of merely FRBMA targets and ensuring fund allocation would not result in development.

Development would be ensured in proper implementation through efficient usage of the allocated funds. Since the Planning Commission is an advisory body without any legislative tooth, it is free from such obligations. Therefore, the debate can very well conclude with the age-old way of arriving at an amicable solution.

Several schemes relating to infrastructure development, education and public health will be announced without regard to effective implementation and the country would continue to pay the price for lack of coherence. Unless the commitment for sustainable development is translated into action, the common man will continue to be taken for a ride and such debates will cease to have takers.

The author is a Partner with BMR & Associates. Views expressed are personal