Moreover, as part of an overall effort to contain the escalating fiscal burden, the ministry also plans to provide for statutory parliamentary approval for all borrowings by the government. Till now, only expenditure limits were approved by the parliament, leaving revenue inflows outside the ambit of a statutory cap. Sanction is sought if there is a supplementary demand for funds. The ministry now wants parliamentary approval for a set of borrowing figures which will match expenditure outflows.

The rationale behind pushing a deficit figure bereft of small savings is the sharp rise in the latter. Savings haveexceeded budget estimates by a whopping Rs 12,500 crore (as of December 1998), thereby forcing the fiscal deficit to balloon by around Rs 10,000 crore. The ministry did impose a percentage cut in interest rates on small savings but the expectation is that these instruments will continue to garner more funds.

The estimates now are that the budget deficit will swell by as much as Rs 12,000 crore by March, 1999. The cut in interest rate seems to have made little impact on the pace of growth of small savings, except to bring about a marginal saving in interest payments, because of lack of alternative instruments.

The government now wants to claim that the growth in small savings and its impact on the fiscal deficit is because of factors beyond its control. This will precisely be the argument for projecting two sets of fiscal deficit figures in the ensuing budget. If the small savings figure is left out, the fiscal deficit will be over target by only around Rs 10,000 crore -- well within acceptablelevels.

The finance ministry is also dabbling with several other options to ensure that the small savings factor does not force budget calculations to go awry. Among them are measures to keep the interest rate differential between small savings and other instruments at a healthy level so that the latter solicits a reasonable response. The other way out is to curtail the impact of small savings on the deficit by taking the netted (net to the centre after disbursements to the states) figure. This will bring down the dominance of small savings in the calculations by 75 per cent.

The proposed cap on borrowings is essentially a technical barrier. The idea is that once parliament approves a certain borrowing pattern, the finance ministry will have to go back to parliament for approval if it intends to borrow more. The exercise will be tedious -- involving justification by the ministry for additional borrowings. Parliamentary criticism will also have to be faced. All this is expected to act as a psychologicalbarrier for the government and attempts will be made internally to keep borrowings under control.

There is a point of view that a cap on borrowings is unnecessary as the parliament, in the budgetary process, sets limits on expenditure. A cap on debt makes the limit on expenditure seem useless. Nevertheless, the ministry seems keen to implement the change.