It would be unwise for the new government to take the risk of courting a fiscal crisis. But if it wishes to avoid it, what are the options before it?

One option is to increase the efficiency of its expenditure. It is well known that there is huge scope for both reducing expenditure and increasing its impact by making far-reaching changes in the delivery mechanism of subsidies and local public goods like health and education. There is scope for reduction of food, fertiliser and oil subsidies without hurting the poor in any way. These reforms have been on the agenda for a long time and in the light of the present challenges it would be a good time to implement them. However, they will take time to implement, and they will not have an immediate impact.

The second option before the government is to sell assets to retire debt so as to stabilise the debt-to-GDP ratio at the present level and to prevent it from exploding. We know that at the present level of this ratio, the national and international communities have not lost confidence in India. Instead of taking the risk of letting this ratio rise owing to fiscal expansion in the coming months, it would be prudent to reduce the probability of such an event occurring by pre-emptively selling assets. These could range from the assets that are the easiest to sell — that is, shares of listed public sector enterprises — to more difficult ones like selling perpetually loss making public sector enterprises. For example, it could sell the top five loss making companies: Fertiliser Corporation of India, Hindustan Fertiliser Corporation, Bharat Coking Coal Ltd, Eastern Coalfields Ltd and National Jute Manufacturers Ltd. Since each of these companies, and many more like them cannot be sold on the stock market, and have accumulated losses so large that no strategic partner will be willing to pay for them, the government needs to find a way to dismantle these companies and sell off pieces of them, such as the valuable land they might hold, to get some revenue. This revenue could then be used to retire debt.

... contd.