Rising revenue deficithas boosted fiscal deficit. Among other things, it now appears that the government's annual pension payments (civil and defence), which were projected to slow down following the hike in retirement age from 58 to 60, actually accelerated by 37 per cent in 1998-99 (and by 45 per cent including pension payments by the railways and postal and communications departments). Under-provisioning for pensions in the current fiscal cannot be ruled out. Brave talk of absorbing the Kargil bill through belt-tightening must be taken with a pinch of salt: the government has no idea how much it spends and where. The trouble is that burgeoning revenue expenditure forces cuts in the budgeted capital expenditure. The capital outlay of 26 per cent (of total budget expenditure) proposed in the 1998-99 budget was compressed to 19 per cent in the revised estimate. Besides, rising revenue expenditure increases resort to public debt. The consequent hardening of interest rates dampens private investment. The result is deficientaggregate investment and suboptimal GDP growth.

To the Centre's fiscal deficit of 7 per cent must be added the 3.5 per cent incurred by the states. The double-digit fiscal deficit (for 1998-99) is worrisome. The cry may be raised that the states must be disciplined. But how? Overdues of state electricity boards are being currently adjusted against the Centre's plan allocations to the respective states. The states have no manoeuvrability left. Disciplining the states under a coalition government (which is likely to be reborn after September) will prove very difficult. On current reckoning, the responsibility of curbing the fiscal deficit will be that of the Centre alone. Given the faux pas on pensions and the Kargil draft, the country will be lucky if the Centre's fiscal deficit does not overshoot 7 per cent of GDP in 1999-00.