The finance minister has rightly dismissed the concept of a cap on debt as not feasible. Political parties which cannot support even a token increase in the price of kerosene or in the price of power for farmers can hardly be expected to support a limit on public debt. Article 292 of the Constitution enables parliament to impose a ceiling on borrowings by the Government. The argument of those who propose such a ceiling is that it will serve the same purpose of "tying Ulysses to the mast", that is, it will keep the Government away from temptation, and serve to mend its profligate ways. There are differences, however, about what constitutes an acceptable ceiling. It should not be an absolute measure, as a higher absolute amount of public debt can be supported by a higher GDP. The ceiling could, however, be linked to a certain percentage of GDP. Trouble is, the level will have to be linked to projected GDP, and that is fraught with numerous pitfalls. Nor is it at all certain that a cap on debt is thesolution.
If a ceiling on debt is placed, and the Government utilises the entire expenditure unproductively, that remedy will be worse than the disease. What is needed is an improvement in the quality of Government expenditure, not necessarily a cap on its increase. Numerous studies have shown that in India, public expenditure helps "crowd in" private investment. The basic argument of those who seek to impose a ceiling on Government expenditure is that the democratic process results in fiscal irresponsibility, and the power to run up debts must be taken away from politicians. That argument goes against the very grain of democracy and should consequently be unacceptable.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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