India is struggling with its expenditure management since the Economic crisis of 1991. The fiscal deficit of India had touched unmanageable level at 8.4 per cent of GDP in 1991 and it was panned to bring it down to 4.5 per cent by 1996. Indian government was able to contain the fiscal deficit to the stipulated level in 1996. But after this, once again there was a divergence between the receipts and expenditure and fiscal deficit continuously increased. The combined fiscal deficit of the Central and state governments increased beyond 10 per cent of GDP (Centre about 6-7 per cent and states about 2-3 percent). India decided to evolve a legally binding commitment on the part of government to contain the fiscal deficit at a tolerable level. In the year 2003 India passed an act called Fiscal Responsibility and Budget Management Act (FRBM Act), which was implemented since 2004. In the initial year the FRBM act successfully achieved the fiscal roadmap that stipulate reduction in the fiscal deficit and revenue deficit by 0.3 per cent of GDP and 0.5 per cent of GDP respectively to realize the goal of fiscal deficit to the tune of 3 per cent of GDP and revenue deficit to zero by 2008. But due to the stimulus package that India adopted in 2008 to ward off the adverse effects of the sub- prime crisis on the Indian economy, one again fiscal deficit goals as given in the fiscal roadmap were defied. Later there was an amendment in 2011-12 in the FRBM act to include two new things- a concept of effective revenue deficit was adopted which was to be maintained at zero level while revenue deficit was stipulated to be contained at 2 per cent of GDP level whereas fiscal deficit goal was still kept at 3 per cent of the GDP level to be achieved by 2015-16. Now the target has been extended to 2017-18 in view of the slowing Indian economy in the backdrop of the European Sovereign Debt Crisis and slowing Chinese economy. The amendment also included an escape clause for such exigencies, which made it difficult to achieve the stipulated goals in the fiscal roadmap.
Expenditure Management Commission
In the 2014-15 budget speech, Finance Minister Arun Jaitley announced the constitution of Expenditure Management Commission (EMC). The Commission had been conceived as a recommendation body with the primary responsibility of suggesting major expenditure reforms that will enable the government to reduce and manage its fiscal deficit at more sustainable levels. The EMC was formed as a five-member body composed of the former Reserve Bank Of India (RBI) Governor Bimal Jalan, who has been appointed to Head the Commission, former Finance Secretary Sumit Bose, former Deputy RBI Governor Subir Gokarn and two other members. The commission was mandated to evaluate proposals for reducing the three major subsidies (i.e. food, fertilizer and oil). The commission was to submit an interim report before the presentation of the Budget for 2015-16. The final report was to be submitted before the 2016-17 budget. But the Commission took a little more time.
The expenditure management commission, headed by former Reserve Bank of India (RBI) governor Bimal Jalan, submitted its first interim report in January 2017 to Finance Minister Arun Jaitley. The finer details will take time till Finance Minister and a team of policymakers examine it and make it public. However, the broad proposals suggest ways for the government to reduce administrative costs and disburse funds for various schemes more efficiently.
The commission might submit a few more interim reports to the government, before presenting a final report early next year. The panel, which includes former RBI deputy governor Subir Gokarn and former finance secretary Sumit Bose, is studying various government schemes, programmes, acquisitions and projects for which the Centre is spending substantially.
It is anticipated that the commission might have suggested the Centre not to carry forward pending expenditure from a particular year to subsequent years to show better expenditure or fiscal deficit numbers. The panel, however, for the time being may not be looking on to the allocation of expenditure towards particular schemes. Rather, it may is recommend ways in which the sum allocated can be spent in the most cost-effective manner. The three broad areas the commission has examined are the delivery mechanism of programmes, the technology being used to implement these, and the accounting methods used by the government.
The government follows the cash-based accounting system, through which income is counted when cash (or a check) is actually received, and expenses are counted when actually paid. An alternative method is an accrual-based system, wherein transactions are counted as they happen, regardless of when the money is actually received or paid. The Commission studied the pros and cons of both methods. Their recommendations in this regard, however, couldn’t be ascertained.
The terms of reference of the commission, constituted on September 4 last year, include reviewing all matters related to central government spending, including suggesting space for increased developmental spending and reviewing the budgeting process and norms under the Fiscal Responsibility and Budget Management Act and suggesting ways to meet a reasonable proportion of spending on services through user charges. It is also to recommend ways to achieve a reduction in financial costs through better cash management, greater use of information technology and improved financial reporting systems.
The Commission is anticipated to give following broad proposals in the report
- Ways for the govt to cut administrative costs
- Panel has suggested ways to spend budgetary allocation effectively
- Delivery mechanisms, technology, accounting methods being studied
Major strains on India’s Expenditure Management
The Indian economy is facing demand and supply side shocks due to demonitisation and a sluggish development in exports and Industrial sector which has reduced the growth forecast a little bit for the year 2017 and 2018. Government has implemented and OROP for defence personnel and the seventh pay commission for the government employees, which would have repercussions for the government expenditure. Also government’s announcement of recapitalization of banks in view of mammoth Non- Performing Assets as well proposal of increase in public sector investment in infrastructure, railways as well as rural development would also put pressure on government exchequer apart from various subsidies. The additional proceeds from Public Sector disinvestment is also uncertain.
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The US Treasury added 13 Iranians and 12 companies on February 4, 2017, some of which are based in Lebanon, the United Arab Emirates and China, to its sanctions list. The United States has announced new sanctions against Iran after its recent missile test. Tehran denounced US sanctions saying that it would impose its own legal restrictions on American individuals and entities. In a statement John Smith, acting director of the Treasury’s Office of Foreign Assets Control said, “Iran’s continued support for terrorism and development of its ballistic missile programme poses a threat to the region, to our partners worldwide, and to the United States.” Earlier National Security Adviser Michael Flynn insisted the missile test by Iran was in defiance of UN Security Council Resolution 2231, which calls on Iran not to test missiles capable of delivering a nuclear weapon. However, Bahram Ghasemi, Iran’s foreign ministry spokesman, later on called the claims “baseless, repetitive and provocative”.
Among those sanctioned were companies, individuals, and brokers the US Treasury said support a trade network run by Iranian businessman Abdollah Asgharzadeh. The Treasury said the businessman supported Shahid Hemmat Industrial Group, which, according to the US, is a subsidiary of an Iranian entity that runs Iran’s ballistic missile programme. The Treasury also sanctioned what it said was a Lebanon-based network run by the Islamic Revolutionary Guard Corps, the elite military body that is also powerful in Iranian politics and the economy. Iran’s foreign ministry condemned the sanctions as illegal and vowed to reciprocate any measures taken against Tehran by the US. “In retaliation for the US sanctions, Iran will impose legal restrictions on some American individuals and entities that were involved in helping and founding regional terrorist groups.” According to Al Jazeera,the “list of individuals and entities will be released by the Iranian foreign ministry after it decides who will make the cut”.
Iran test-fired (January 29)a medium-range missile, which the White House contends violated a UN Security Council resolution proscribing missiles that could carry a nuclear device.
Tehran has confirmed it tested a ballistic missile, but denied it was a breach of a 2015 nuclear deal with world powers or UN resolutions. Earlier, US President Donald Trump had said Iran was “playing with fire” after Tehran dismissed his warnings over the missile test as unfounded and provocative. In a post on Twitter, Trump said his administration would not be as “kind” to Iran as the government of his predecessor, Barack Obama. “Iran is playing with fire – they don’t appreciate how ‘kind’ President Obama was to them. Not me!” Trump said. The comment appeared to prompt a quick response from Mohammad Javad Zarif, Iran’s foreign minister. “Iran unmoved by threats as we derive security from our people. Will never initiate war, but we can only rely on our own means of defence,” Zarif wrote also on Twitter. Trita Parsi, president of the National Iranian American Council, said “all these new tensions that are emerging, and this war of words between the US and Iran in and of itself is endangering” the nuclear deal. “The Trump administration has decided to really dial up this escalation without first establishing de-escalatory mechanisms – they don’t have a direct dialogue with Iran in order to be able to calm things down once they believe they have achieved their objectives.” “So, if you only have an ability to dial it up, but not dial it now, that is what is most worrisome right now because it could, unfortunately, lead to a military confrontation.” Iran said on the same day when sanctions were imposed by the US it had barred a US wrestling team from participating in the Freestyle World Cup competition in retaliation for an executive order by Trump banning visas for Iranians, Iran’s state television reported.
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Washington is in the grip of a revolution. The bleak cadence of last month’s inauguration was still in the air when Donald Trump lobbed the first Molotov cocktail of policies and executive orders against the capital’s brilliant-white porticos. He has not stopped. Quitting the Trans-Pacific Partnership, demanding a renegotiation of NAFTA and a wall with Mexico, overhauling immigration, warming to Brexit-bound Britain and Russia, cooling to the European Union, defending torture, attacking the press: onward he and his people charged, leaving the wreckage of received opinion smouldering in their wake.
To his critics, Mr Trump is reckless and chaotic. Nowhere more so than in last week’s temporary ban on entry for citizens from seven Middle Eastern countries—drafted in secret, enacted in haste and unlikely to fulfil its declared aim of sparing America from terrorism. Even his Republican allies lamented that a fine, popular policy was marred by its execution.
In politics chaos normally leads to failure. With Mr Trump, chaos seems to be part of the plan. Promises that sounded like hyperbole in the campaign now amount to a deadly serious revolt aimed at shaking up Washington and the world.
The Cocktail Party
To understand Mr Trump’s insurgency, start with the uses of outrage. In a divided America, where the other side is not just mistaken but malign, conflict is a political asset. The more Mr Trump used his stump speeches to offend polite opinion, the more his supporters were convinced that he really would evict the treacherous, greedy elite from their Washington salons.
His grenade-chuckers-in-chief, Stephen Bannon and Stephen Miller, have now carried that logic into government. Every time demonstrators and the media rail against Mr Trump, it is proof that he must be doing something right. If the outpourings of the West Wing are chaotic, it only goes to show that Mr Trump is a man of action just as he promised. The secrecy and confusion of the immigration ban are a sign not of failure, but of how his people shun the self-serving experts who habitually subvert the popular will.
The politics of conflict are harnessed to a world view that rejects decades of American foreign policy. Tactically, Mr Trump has little time for the multilateral bodies that govern everything from security to trade to the environment. He believes that lesser countries reap most of the rewards while America foots the bill. It can exploit its bargaining power to get a better deal by picking off countries one by one.
Mr Bannon and others reject American diplomacy strategically, too. They believe multilateralism embodies an obsolete liberal internationalism. Today’s ideological struggle is not over universal human rights, but the defence of “Judeo-Christian” culture from the onslaught of other civilisations, in particular, Islam. Seen through this prism, the UN and the EU are obstacles and Vladimir Putin, for the moment, a potential ally.
Nobody can say how firmly Mr Trump believes all this. Perhaps, amid the trappings of power, he will tire of guerrilla warfare. Perhaps a stockmarket correction will so unsettle the nation’s CEO that he will cast Mr Bannon out. Perhaps a crisis will force him into the arms of his chief of staff and his secretaries of defence and state, none of whom is quite the insurgent type. But don’t count on it happening soon. And don’t underestimate the harm that could be done first.
Americans who reject Mr Trump will, naturally, fear most for what he could do to their own country. They are right to worry, but they gain some protection from their institutions and the law. In the world at large, however, checks on Mr Trump are few. The consequences could be grave.
Without active American support and participation, the machinery of global co-operation could well fail. The World Trade Organisation would not be worthy of the name. The UN would fall into disuse. Countless treaties and conventions would be undermined. Although each one stands alone, together they form a system that binds America to its allies and projects its power across the world. Because habits of co-operation that were decades in the making cannot easily be put back together again, the harm would be lasting. In the spiral of distrust and recrimination, countries that are dissatisfied with the world will be tempted to change it—if necessary by force.
What to do? The first task is to limit the damage. There is little point in cutting Mr Trump off. Moderate Republicans and America’s allies need to tell him why Mr Bannon and his co-ideologues are wrong. Even in the narrowest sense of American self-interest, their appetite for bilateralism is misguided, not least because the economic harm from the complexity and contradictions of a web of bilateral relations would outweigh any gains to be won from tougher negotiations. Mr Trump also needs to be persuaded that alliances are America’s greatest source of power. Its unique network plays as large a role as its economy and its military might in making it the global superpower. Alliances help raise it above its regional rivals—China in East Asia, Russia in eastern Europe, Iran in the Middle East. If Mr Trump truly wants to put America First, his priority should be strengthening ties, not treating allies with contempt.
And if this advice is ignored? America’s allies must strive to preserve multilateral institutions for the day after Mr Trump, by bolstering their finances and limiting the strife within them. And they must plan for a world without American leadership. If anyone is tempted to look to China to take on the mantle, it is not ready, even if that were desirable. Europe will no longer have the luxury of underfunding NATO and undercutting the EU’s foreign service—the closest it has to a State Department. Brazil, the regional power, must be prepared to help lead Latin America. In the Middle East fractious Arab states will together have to find a formula for living at peace with Iran.
A web of bilateralism and a jerry-rigged regionalism are palpably worse for America than the world Mr Trump inherited. It is not too late for him to conclude how much worse, to ditch his bomb-throwers and switch course. The world should hope for that outcome. But it must prepare for trouble.
Courtesy: The Economist, Feb 4th 2017
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