On borrowed time

As PM takes over finance, India is crippled by uncovered liabilities

Rating agencies are not particularly adept at navigating the depths of the Indian government's accounts. Otherwise they should have been curious why, in just four years, New Delhi's uncovered liabilities have more than doubled to Rs 29,06,065 crore. The sum is 20 per cent of the Indian GDP but none of the three agencies has included this piece of data in its outlook for the Indian economy as negative or stable.

It is probably good for Prime Minister Manmohan Singh that they left this track uncovered. As he gets down to his additional responsibility as the 29th finance minister of India, he can explain at peace to his party that the number is more dangerous than all the negatives hurled by the agencies and possibly earn breathing space to sail the economy out of stagflation waters.

In four years, the Indian government has so expanded its liabilities to the rest of the world, without collateral, that they now account for a fifth of the Indian GDP (at the beginning of this fiscal). In effect, the excess liabilities can only be squared off by payments in cash. If you want to know why inflation is proving so stubborn and why the RBI governor is telling anyone who will listen that interest rate cuts will not help much, the answer is here.

The sum is enough to make the prime minister want to flash it in front of any minister or party member who thinks the government should function as a printing press for currency notes. It should urge them to move ahead on sound economic policymaking, something that has gone out of the large windows that North Block sports.

Why are these uncovered or excess liabilities dangerous? A good measure of the usefulness of the work done by a government is to match its expenditure against the work for which it is used. Capital outlay is good work as it is an investment for the future. So are loans to state or local governments as they promise to pay them back at agreed rates of interest. Even West Bengal is paying back loans, which must rile Mamata Banerjee.

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