Briefly analyses the rising indebtedness of governments in India, illustrates the formation of worthless ministerial empires that are no more than brokers and makes a strong case for separating policy from implementation to minimise waste and rent-seeking in government expenditure.

1. 1
Catharsis & Crises in Government Finances in India
Shantanu Basu
The Public Debt Management Report1 of the Ministry of Finance (MoF) for the Q4 2016-17 makes
for interesting reading. Para 1.3 reads: “Industrial growth, as measured by index of industrial
production (IIP), declined to its slowest pace in four-months in Feb 2017 at (-) 1.2 per cent as
compared to 1.9 per cent a year ago, led by a fall in manufacturing activity and production of capital
and consumer goods……growth in all the industry groups except basic goods was in negative in Feb
2017 over the…….previous year. Production of capital goods declined 3.4 per cent in February 2017
as compared to a decline of 9.3 per cent in the year-ago period while consumer goods declined 5.6
per cent in Feb 2017 as against growth of 0.6 per cent in the year ago period. Manufacturing sector
………contracted by about 2.0 per cent in Feb 2017 while growth rates in mining (weight 14.2 per
cent) and electricity sector (weight 10.3 per cent) were positive at 3.3 per cent and 0.3 per cent,
respectively. On the cumulative basis, in the Apr-Feb 2017 period, IIP registered a growth of 0.4% as
compared to 2.6% a year ago”.
Notwithstanding such dismal scenario, the Controller General of Accounts (CGA) says gross receipts
of the Govt. of India (GoI) rose by nearly Rs. 2 lakh crore – Rs. 12.58 lakh crore and Rs. 14.40 lakh
crore in 2016 and 2017 respectively2. Of a Rs. 19.75 lakh crore budget, interest payment took away
about Rs. 4.80 lakh crore, i.e. 24%. Non-Plan expenditure on revenue account took away another
approx. Rs 8 lakh crore or 41%. In effect about two-thirds of GoI’s expenditure budget for 2016-17
owed either to debt servicing or self-sustenance respectively. Needless to add, only about Rs. 1.85
lakh crore, less than 10% of the budget, went into capital expenditure. This figure incidentally
includes construction of new office and technical buildings, residential complexes for govt.
personnel, major repairs to govt. installations, and 1-5% for execution agency charges, reducing the
public benefit further. Thus there are hardly any funds left from the balance 25-30% for states and
other consuming Ministries.
Revenue deficit of Rs. 5.35 crore (projected gross fiscal deficit to cross Rs. 6 lakh crore by the MoF
document above) is thus invariable. Para 2.3.1 of the MoF’s report3 shows that GoI borrowed Rs.
5.82 lakh crore in 2016-17, nominally less than in 2015-16. Para 4.1 of the same MoF Report adds
that “The total Public Debt (excluding liabilities under the ‘Public Account’) of the Government
provisionally decreased to Rs. 6,066,312 crore at end-March 2017 from Rs. 6,184,106 crore at end-
December 2016”, i.e. about Rs. 60 lakh crore.
CGA’s online data shows a shortfall of about Rs. 41000 crore on non-tax revenues against revised
estimates, probably reflective of the failure of telecom and other auctions. Compounding this is a
revenue decline of about Rs. 38000 crore in 2016-17 over 2015-16. In 2017-18 and onward either
GOI or states, or both, will have to provide public sector banks whose farm loans were
waived/awaiting waiver to provide for at least Rs. one lakh plus crore in the respective budgets. Niti
1 Ministry of Finance: Public Debt Management Quarterly Report Jan-Mar, 2017 extracted on Jul 7, 2017 from
http://dea.gov.in/sites/default/files/Quarterly%20Report%20on%20Public%20Debt%20Management_Q4%202016 -
17%20%28Jan-Mar%202017%29.pdf , p.3
2 Controller General of Accounts, Extracted on Jul 7, 2017 from
http://www.cga.nic.in/MonthlyReport/Published/3/2016-2017.aspx
3 Ministry of Finance: Public Debt Management Quarterly Report Jan-Mar, 2017 extracted on Jul 7, 2017 from
http://dea.gov.in/sites/default/files/Quarterly%20Report%20on%20Public%20Debt%20Management_Q4%202016-
17%20%28Jan-Mar%202017%29.pdf,p. 6

2. 2
Aayog online data4 shows non-special category states with total outstanding liabilities in the range of
20-24% of GSDP. However, worrisome are special category states that account for a 19-46%
liabilities’ range. Farm loan waivers of about Rs. one lakh crore in 2017-18 have already become
inescapable with major states like Maharashtra and UP having waived about Rs. 70000 crore
together while many more demands are in various stages of consideration in other states. Unless
made good by the GoI or states to the loaning banks, the public sector banking sector would sink
even deeper into the red.
Although the last Finance Commission (FC) recommended (that was accepted by GoI) a 10% rise in
share of central taxes for states taking the total to 42%, this is unlikely to benefit states that have
been politically reticent about raising their own revenues. Non-special category states like Bihar
(31.3%), MP (46.20%), Jharkhand (42.50%), Odisha (44.30%) and WB (44.70%) cannot cover even
half their running expenses on their own revenue. Not surprisingly, Bihar (31.3%) was only
nominally better placed than special category-Assam (32.20%) in 2014-15. GNCT Delhi was the
only one that generated 118.80% on its own in 2014-15. Major states like Gujarat (217.20%),
Karnataka (200.44%), Maharashtra (309.6%), Tamil Nadu (257.1%), UP (284.1%) reported the
highest estimated gross fiscal deficit in 2014-15. Interestingly, heavily indebted states like WB
(152.90%) and Punjab (103.70%)5 fared far better, learning to live within their meagre means.
While granting the 42% FC rise, GoI did away with several centrally-funded/aided schemes that
more than nullified whatever little the states gained. With GST gains unknown, and most state levies
having been subsumed in it, states like Maharashtra and Tamil Nadu are lawfully raising taxes on
motor vehicles and cinema tickets, with many more to come. Obviously, one nation one tax did little
to convince states. Hence, GoI cannot shy away from its financial responsibilities towards its electors
in states and will have to provide for them accordingly, presumably by more borrowing, till GST
fully kicks in. Even if GST turns a gold mine, for the first few years proceeds would have to be
devoted to retire high-cost debts.
Defense expenditure has steadily declined from 15.24% of the GoI’s budget and 2.36% of GDP in
2000-01 to 12.20% and 1.56% respectively in 2017-18. Although the defense budget for 2017-18
shows a nominal increase of 5.8 per cent over the last year’s allocation, net of inflation @ 5%, the
real increase is a negligible 0.8%. Rs 86488.01 crore has been allocated for Capital Expenditure in
2017-18. The Army projected an amount of Rs 42485.93 crore for Capital Budget but only Rs
25246.35 crore was allocated by the Finance Ministry. Likewise, the Navy and Air Force which
projected a requirement of Rs 27546.49 crore and Rs 62048.85 crore have been allocated Rs
18603.71 crore and Rs 33570.17 crore, respectively. Against its demand for Rs. 64000 crore for
development of capability in the Northern borders, the Army was allocated a measly Rs. 4000 crore
in 2017-18. The Navy is not far better in its mendicancy. In 2017-18, the allocation is Rs. 18000
crore in the capital budget whereas the committed liabilities alone are Rs. 22000 crore, leaving a
gaping hole of Rs 4000 crore ($620 million) for committed capital expenditure this year6. Likewise,
the IAF has been allocated only Rs 4000 crore for new schemes when a single fully-equipped fighter
aircraft costs anywhere between $150-250 million. The Defense Minister, also Finance Minister
however, bravely promised the Lok Sabha in mid-March, 20177, that “Any critical requirement of
4 NITI Aayog: State Statistics- Debt (total outstandingliabilities) as percentageof GSDP extracted on Jul 7, 2017 from
http://niti.gov.in/content/debt-total-outstanding-liabilities-percenatge-gsdp
5 NITI Aayog: State Statistics- extracted on Jul 7, 2017 from http://niti.gov.in/content/own-revenue-percentage-
revenue-expenditure
6 SushantSingh: Defence allocation:A battle for funds, Indian Express,Mar,21, 2017 extracted on Jaul 7, 2017 from
http://indianexpress.com/article/india/defence-allocation-budget-financial-year-2018-4578100/
7 Outlook: Armed forces fully prepared to meet any challenge:Jaitley,extracted on Jul 7, 2017 from
https://www.outlookindia.com/newsscroll/armed-forces-fully-prepared-to-meet-any-challenge-jaitley/1008833

3. 3
the forces will not be compromised with, even if we have to cut expenditure somewhere else.”
Obviously even he was short of ideas where such deep cuts could be made.
Turning to non-defense infrastructure, speaking at the BRICS-NDB 2nd annual meeting earlier this
year, India’s Finance Minister estimated India’s needs of financing for infrastructure at anywhere up
to Rs. 43 trillion or $646 billion in 2017-228, i.e. an average of 8-9 lakh crore per annum in the next
five years or 40% of the GoI’s annual budget of Rs. 19.75 lakh crore in 2016-17. Given the
burgeoning debts of the private sector, primarily in distressed power projects, GOI and states may
well have to fork out 40-60% of such numbers via their budget at interest rates of 7-11%. If project
on-streaming is delayed, as they usually are, Greece would have come home to India after a few
years.
It is abundantly clear that the debt: GDP ratio is steadily worsening with the NK Singh Committee
estimating it at an average of 73.2%9, though we are still far away from the US and UK in this
regard. Revenue expenses, i.e. the cost of sustaining governments, are rising at an alarming pace.
Collectively, states and the union employ over two crore personnel (excluding defense services) plus
an equal or larger number in innumerable autonomous bodies and other agencies, public sector
(PSU) and financial institutions (FI) substantially owned by governments. As on date GoI has over 50
ministries and 50 departments embedded in them10. These departments in turn have several other
departments, autonomous bodies, PSUs, & FIs under their administrative control. The number of
autonomous bodies has expanded from 35 in 1955 to 533 in 2012, guzzling an estimated Rs. 60000
crore per annum11.
Ministry fiefdoms have expanded manifold. The Ministry of Culture boasts an impressive list of two
attached offices, six subordinate offices, four Akademis, four Buddhist institutes, six libraries, seven
museums, eight zonal cultural centers, five national missions, 21 schemes and nine other
institutions12. In 2017-18, this Ministry proposes to spend Rs. 888.26 crore on promotion of arts and
culture, Rs. 241.17 crore on public libraries and Rs. 875.37 crore on the Archaeological Survey of
India and Rs. 362.94 crore on museums, among other items. Of course, to ‘manage’ so many
institutions, this Ministry has provided Rs. 319.40 crore for its own establishment with a generous
Rs. 75 lakh for foreign travel of its own officers/Minister13.
The Dept. of Commerce’s fiefdom is headed by a Minister, a Secretary and assisted by an Additional
Secretary & Financial Advisor, four Additional Secretaries and 14 Joint Secretaries & Joint Secretary
level officers and a number of other senior officers and other establishment14 that is proposed to cost
over Rs. 699.38 crore in 2017-18, including a foreign travel grant of Rs. 4.80 crore for its
officers/Minister of total budget allocation of Rs. 4465.77 crore in 2017-1815. Incidentally, these
8 AsitRanjan Mishra:India needs Rs43 trillion of investment in infrastructureover next 5 years: Jaitley,Livemint, Apr 1,
2017 extracted on Jul 7, 2017 from http://www.livemint.com/Politics/gPlr87Sm2mtmYHZ3WrdxvL/India-to-grow-at-77-
in-2018-emerging-markets-face-newer-c.html
9 The Telegraph: Focus shifts fromdeficitto debt, extracted on Jul 7, 2017 from
https://www.telegraphindia.com/1170413/jsp/business/story_146061.jsp
10 National Informatics Centre: Govt. of India web directory, extracted on Jul 7, 2017 from
http://goidirectory.nic.in/union_index.php
11 Mahendra K Singh: Niti Aayog to vet performance of 500 autonomous bodies,Times of India,extracted on Jul 7, 2017
from http://timesofindia.indiatimes.com/india/Niti-Aayog-to-vet-performance-of-500-autonomous-
bodies/articleshow/55124850.cms
12 Ministry of Culture: Extracted on Jul 7, 2017 from http://www.indiaculture.nic.in/
13 Ministry of Culture: Detailed Demands for Grants 2017-18,extracted on Jul 7, 2017 from
http://www.indiaculture.nic.in/sites/default/files/pdf/DDG-17-18-MoCulture_12.04.2017.pdf
14 Department of Commerce: Extracted on Jul 7, 2017 from http://commerce.gov.in/
15 Ministry of Finance: Demands for Grants 2017-18 extracted on Jul 7, 2017 from http://indiabudget.nic.in/ub2017-
18/eb/sbe11.pdf

4. 4
figures are only for the Dept.’s own establishment and do not include its subordinate organs. This
Dept. has six main divisions- International Trade Policy, Foreign Trade Territorial, Export Products,
Export Industries, Export Services and Economic -while the remaining four are either redundant or
ancillary to the others. In addition, it controls five attached and subordinate offices, 6 autonomous
bodies and five autonomous commodity boards, 5 PSUs, 14 export promotion councils and 6 other
organizations.
At the same time Ministry of External Affairs’ Economic Division (MEA-ED) is the nodal division
within that Ministry which promotes and facilitates foreign investment flows (FDI, FII, technology
transfer and management) and handles all issues relating to energy security agriculture (including
food processing), trade (FTA), civil aviation (including bilateral ASAs), energy (coal, oil, gas and
renewables), investments (BIT), shipping, ports, highways, railways, telecommunications,
electronics, services, auto, tourism, pharmaceuticals etc. in consultation with concerned Ministries,
business chambers, media houses, and consultancy firms16. Where is the need to keep the Dept. of
Commerce alive as an independent entity? Its seven core divisions and at least 3/4th of its subordinate
kingdom could be profitably merged into the MEA-ED. The DGCIS could be moved to the Dept. of
Revenue. The international cooperation divisions of all other Ministries that have healthy foreign
travel budgets each could also be brought under the MEA-ED’s umbrella with minimal additional
staffing.
Now let us take a look at the organization of the Dept. of Financial Services under the MoF. The
introductory line on this dept.’s web page reads “The mandate of the Department of Financial
Services covers the functioning of Banks, Financial Institutions, Insurance Companies and the
National Pension System. The Department is headed by the Secretary, (Financial Services) who is
assisted by 2 Additional Secretary (AS), 6 Joint Secretaries (JS), 2 Economic Advisers (EAs) and a
Deputy Director General (DDG)”17. What it conveniently omits is the fact that these worthies are
backed by an army of 6 Directors, 5 Dy. Secretaries, 2 Jt. & Dy. Directors each, 17 undersecretaries,
5 Asst. Directors & Research Officers and a dozen Section Officers plus corresponding ministerial
staff of at least 5-6 times the total of these numbers. Banking and non-banking and insurance
services are regulated by the Reserve Bank of India and Insurance Regulatory Development
Authority (IRDA) while all FIs under its legislative control function within well-defined rules and
expansive legislation. Why then are so many senior officers and support personnel required to ‘cover
the functioning of’ self-administering agencies? In spite of having an army of personnel, why is the
Dept.’s Annual Report beyond 2013-14 not available in the public domain18?
A cursory reading of this dept.’s Budget Estimates for 2017-18 shows that its allocation been nearly
halved from Rs. 31500 crore in 2016-17 to Rs. 17450 crore in 2017-18, owing to recapping of public
sector banks’ eroded share capital. Thirty five clarification notes below the estimates cast this Dept.
as no more than an intermediary for funding various FIs for a variety of purposes19. If GOI’s intent in
channeling funds for other govt. entities through this Dept. was to ensure accountability, how is that
the same Dept. was unable even to gauge the extent of NPA/CDRs, etc. in state-owned banks and,
even today, has not initiated any visible action against innumerable culpable bank officers and
Directors? If GOI can directly transfer recapping funds to banks, why can this not extend to other
govt. agencies and states too? Is it not open conflict of interest that a former Secretary of this Dept.,
who also rose to be its principal constitutional auditor, is today unconstitutionally appointed to
16 Ministry of External Affairs:Organizational structureextracted on Jul 7, 2017 from
17 Dept. of Financial Services:Extracted on Jul 7, 2017 from http://financialservices.gov.in/about-us/about-the-
department
18 Dept. of Financial Services:Suo motu disclosureunder section-4 of RTI Act,2005, extr5acted on Jul 7, 2017 from
http://financialservices.gov.in/rti/suo-moto-disclosure-under-section-4-rti-act2005new
19 Dept. of Financial Services:Detailed Demands for Grants 2017-18 extracted on Jul 7, 2017 from
http://indiabudget.gov.in/ub2017-18/eb/sbe31.pdf

5. 5
recommend top officers for appointment to state-owned banks from a section of people that his Dept.
‘administered’ all these years?
Given the acute and worsening state of GOI and state finances, heightened by large interest-bearing
borrowings, and the long rent and influence seeking/peddling chains that operate even today, it is
imperative that Ministries are restricted only to policy-making while implementation is left to depts.
that must be held accountable directly by legislatures. Policy-making could be subsumed in a cogent
group of Ministries. For instance, combining Ministers of Finance and Corporate Affairs present a
clear conflict of interest. Likewise, why does the Ministry of Urban Development need to exist as an
independent entity when urban development is almost delivered, cent per cent, by states? The same
holds true of the entire range of social development ministries that act mostly as intermediaries with
the states. Similarly, what is the role of the Ministry of Heavy Industries and Public Enterprises,
Rural Development, Panchayati Raj and many more, save as brokers of public finances and supreme
dispenser of favors?
Draconian steps are often justified when a financial crunch hits governments, short of declaring a
financial emergency? If Mrs. Gandhi could evict allottees of govt. residential accommodation that
had their own homes in their areas of work and force them to shift there within two months, what
prevents this from being treated as a precedent? Why must governments maintain staff cars for
senior officers costing over Rs. 1.50 lakh/month and not pay them Rs. 50000/month instead for their
own car and driver? Why is it that de-mobbed service and police personnel are not placed into
appropriate govt. posts instead of going in for rent-seeking recruitment? Why is it that the expansive
and expensive NIC cannot automate routine claims, eliminating the army of clerks that ‘regulate’
them repetitively and digitalize policy files along with electronic filing and movement systems that
would obviate another army of messengers, etc.?
The only way that development in India would happen within the federal structure embodied in the
Constitution would be for the GOI to cease acting through its unending chain of broking ministries
and departments, separating policy from implementation, and shoring up state cadres of All-India
service officers by reducing their pen-pushing numbers in the Centre to implementers in states. For
GOI to become a facilitator of development it is imperative that its accountability mechanisms are
hugely strengthened such as in expansive and peripatetic executive monitoring and reporting and
internal audit teams, real-time accounting and budgeting systems, substantial devolution of financial
powers to Secretaries, publicized recruitment of domain specialists by lateral entry into the civil
services at all levels and mandatory portability of civil services across posts above the rank of Dy.
Secretary and above at both central and state levels.
Why not abolish the post of Dy. Secretary and Additional/Special Secretaries in GoI and in states?
Likewise, why not merge posts of Secretaries to GOI such that each one has at least 10-15 Jt.
Secretary level officers reporting to him limited to policy-making alone? This could follow down the
line with 5-10 Directors reporting to each Jt. Secretary and downward. In similar manner, why not
also have a Director of Prosecution for mal-doers in govt. and govt.’s clients by merging multiple
investigative agencies and equipping them with a chain of fast-track courts with the jurisdiction of a
state High Court and a captive Appellate Court? Why not mandate two tenures in state govts. for at
least 6 years for a central service officer and similarly for an all-India Service officer in other GoI
depts.?
Policy-making and implementation therefore present a lethal conflict of interest with one being
tailored to meet the need of the other as has been the experience over the last seven decades. The
convergence of these two divisions have made the perpetuation of government the final objective and
given rise to giant waste and the creation of organized rent-seeking chains in governments that is
mainly responsible for an impending financial crisis the nation faces today. Today, when the nation’s
electors baulk at the shrinking finances of their nation and the low level of national development,

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they can only blame themselves for their electoral complicity in their own steamrolling by a
genetically brutal colonial-political system that continues to date without much hope of succor in the
foreseeable future. Till then Indians must learn to pay for profligacy, rent-seeking and debt servicing
for about Rs. 200 lakh crore that is steadily rising every year.(Concluded) (1510 words)
The author is a senior public policy analyst and commentator