Most people doubt whether the present government's record in this area will be any better than that of the Congress governments. Some cynics even question whether the reduction in government expenditure, which can be attributed to the recommendations of the Expenditure Control Committee, will be sufficient to cover the costs incurred by the Committee itself!
This pessimism is not unwarranted. There is hardly any reason to believe that the officers in the Indian Audit and Accounts service or in the IAS do not have the expertise to advise the government on how to exercise expenditure control. What they do lack is the power to enforce what they normally recommend. This power rests with the ministers and other politicians.
But, it is usually not in the interest of political leaders to reduce government expenditure. How else can patronage be distributed and vote banks be appeased? How can the successful political leaders get their perks, if the government decides to practise austerity? For instance, how could a group of speakers of state assemblies, members of an official delegation, travel to Kuala Lampur via Paris?
Unstable coalitions or governments that are not likely to remain in power for an extended period of time, typically have very little incentive to practise austerity. They are liable to introduce policy distortions for at least two reasons. First, such governments obviously have very short time-horizons. This has important implications for economic policy in general and budgetary policy in particular. If political power alternates rapidly and randomly between competing political parties or groups of parties, then each government will follow myopic policies, since it assigns a low probability to being reelected. Hard policy options whose benefits flow after a long gestation period, are unlikely to be adopted by such a government. Instead, it may spend indiscriminately in order to satisfy the short-term needs of its support groups. Although this will result in a legacy of high debt to its successor, the current government does not care about the priorities of the next government.
The second route through which the rapid turnover of governments may induce policy distortions, is particularly relevant in the case of coalition governments. The shorter the expected duration of such governments, the more difficult it will be for the members of the ruling coalition to agree on policies. Of course, the more heterogeneous the parties in the ruling coalition, the greater will be the lack of cooperation. Each party in the ruling coalition may then try to promote populist policies in order to exploit its own narrow interests. The most likely casualty of all this will be fiscal discipline, since government expenditure will be excessive. The Indian experience with coalition
governments provides support for the hypothesis, that unstable coalition governments are less likely to practise fiscal discipline. An analysis of different state governments' budgets since 1967 reveals, that unstable coalitions do have significantly higher levels of revenue expenditure compared to other types of government. There is some evidence indicating that unstable coalitions are not very enthusiastic about raising non-tax revenues.
Several signs indicate that the present government is behaving like the typical coalition government. The first pointer was the ridiculous hue and cry raised by several parties, when the finance minister issued a statement indicating his intention to practise strict economy in government expenditure. The second event was the size of the Planning Commission. It is probably as big as it ever has been in the past, this at a time when the government claims that it is going to proceed with greater reliance on market forces. Since members don't come for free, why do we need such a bloated Planning Commission? Specially, at a time when the Commission no longer has an important role?
Perhaps, the most appalling waste of public money is the decision to grant cabinet status to former prime ministers. Clearly, the government is willing to go to any extent to keep important leaders happy. And I have no doubt, that such instances will multiply. What are the odds on the government failing to satisfy its expenditure targets during the current financial year?
