The use of the term bail-out is justified: the states are totally dependent on central tax and non-tax revenue transfers to keep their head above water. And the Centre is deep in the red.

The latest pay revision has burgeoned the Centre's total `civilian' salary bill( excluding travel allowance). Since the Centre's pay scales act as a benchmark, there have been similar pay revisions in the states, the public sector undertakings,local bodies and aided institutions. The total additional annual salary bill is colossal.

True,the salary bill will grow less spectacularly , now that the back log of pay revision has been covered. But the sheer size of the wage bill can cause some harm to the government coffers. The Centre cannot run up fiscal deficits as it has in the past.

This is even truer of the states.At both levels, development expenditure will take cuts.Central bail-outs of states will be at the expense of central plan outlay. The states , on their part, will have to accept cuts in plan transfers to the extent state undertakings are unable to pay overdues to Central undertakings.

On the cards is declining public investment, following the diversion of government resources into meeting the onerous wage bill of the higher and lower bureaucracy. The prospect may not be viewed with alarm since in a reforming economy private investment comes to the fore. But as seen in the last four years, private investment can flag to hold down growth below potential. There is room for counter-cyclical public investment; but alas, the Centre has no manoeuvrability.

To an extent, the Centre can encourage private investment in infrastructure through appropriate policy initiative: but note, the horse can be taken to the water; it cannot be made to drink. Private investment can hardly be expected to make good the deficiency in social sector spending by the states.The loss of public investment initiative, exacerbated by the high wage bill, looms large before the Centre and the states.

Viewed thus, downsizing is all about restoring the government's manoeuvrability to optimise aggregate investment, to correct an imbalance in the pattern of investment and to reach out to the less fortunate sections of society. Downsizing must underscore expenditure-switching. This requires defining the role of government .This has been lost sight of in the number-crunching on downsizing.

Sure enough, a 3 per cent annual cut in the size of government over a 10-year period makes sense. The Expenditure Commission wants a fresh 10 per cent cut in the sanctioned staff strength. It wants to limit recruitment to a fourth of vacancies, and so forth.The salary bill will be pruned. That is arithmetic.What next? With downsizing, will government take a back seat? Downsizing needs a public philosophy.Its neglect will give the incipient Third Front the chink in the reform armour it is looking for.