By the Way Mr Chairman: Public Spending is a Constitutional Requirement


The 15th Finance Commission is about to write its recommendations in India. The Chairman NK Singh is the same man who wrote a report on the functioning of the Fiscal Responsibility and Budget Management Act 2003 (FRBMA2003) on January 19th 2017, in which he found it reasonable to repeat that State and Central Governments should stick to the Act and not have fiscal deficits of more than 3 percent of State or Central Gross Domestic Product and budget deficits of not more than 40 or 50% of GDP. NK Singh wrote:<<a common perception seems to be that countries like India with a high domestic debt burden but a small fraction of external debt should not worry about public debt. One reason for this perception is the belief that governments can never default on domestic debt as they can always print money and inflate away their debt. However, it was recognised that, in practice, high inflation could be costly as well.>> on page 2 says: <<Fiscal prudence.. has created space for private investment and when blended with sustainable levels of public outlays can have indisputable benefits. However, in a country like India where the incidence of poverty remains exceptionally high, the reliability and quality of infrastructure is weak, and there is a need to improve outcomes on health and education, the morally compelling case for enhanced public outlays can hardly be over stated. Fiscal policies must be cognisant of these obligations.>>

For the majority of Indians who are not creditworthy by banking standards whether nationalised or otherwise and who have not got any benefit at all from the space created for private investment, this idea that public sector spending is a matter of an upper caste moral compulsion is outrageous. In fact it is as a constitutional requirement that the Finance Commission do its work to enable the State to act in conformity with the Directive Principles of the State and enable the three tiers of Government to perform their assigned functions. The Directive Principles of State Policy cannot just be adhered to out of thin air or because of the moral beneficence of NK Singh but rather will only become reality with the will and political commitment of the Fifteenth Finance Commission to providing the money required. All three tiers of the State must meet the Directive Principles of State Policy laid out in the Constitution of India and do everything else required in the Constitution.

According to Article 280 of the Constitution of India the Finance Commission has to make recommendations to the President as to the principles which should govern the grants in aid of the revenues of the States out of the Consolidated Fund of India: also the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds; and also any other matter in the interests of sound finance. The consolidated fund of the Union Government is the bank account that holds all the sources of money of the Government, including taxes, money raised through bonds, whether sold to private investors or the Reserve Bank of India, other sources of income and so on. In 2003 the FRBMA2003 outlawed Government borrowing from the RBI but notwithstanding, the Central Government may borrow and has borrowed from the Reserve Bank by way of advances to meet temporary excess of cash disbursement over cash receipts during the financial year in accordance with the agreements entered into with the Reserve Bank. Indeed the Government is issuing Rs 250,000 crore NRI bonds shortly, much of them no doubt to be bought up by the RBI in Open Market Operations, to refinance the public sector banks, and this refinancing of banks does not affect its fiscal deficit only the public debt. So outlawing borrowing from the RBI does not mean the RBI cannot support the Government to raise as much money it needs or wants, for anything. The FRBMA2003 provides that the Central Government shall prescribe the annual targets for reduction of fiscal deficit, <<provided that exceeding annual fiscal deficit target due to ground or grounds of national security, act of war, national calamity, collapse of agriculture severely affecting farm output and incomes, structural reforms in the economy with unanticipated fiscal implications, decline in real output growth of a quarter by at least three per cent points below its average of the previous four quarters, may be allowed for the purposes of this section.>>

In this context of targets with provisos, it is important to remind the Finance Commission members that in India the Constitution of India is supreme, and the fiscal management principles of the FRBM Act are actually principles that cannot be read separately from the Constitution of India.

NK Singh has also taken Mahatma Gandhi and turned him on his head. He writes (page 12):

<<A rapidly growing economy is the only medium we know to improve the quality of life and address poverty. However, to ensure macroeconomic stability and inter-generational equity, we must strive for responsible growth. .. To conclude, Mahatma Gandhi had said that “economics that hurts the moral well being of an individual or a nation are immoral and therefore sinful”. Rising expenditure financed through unsustainable borrowings and high public indebtedness hurts the moral well-being of a nation. That is why “responsible” growth is our compelling obligation and necessity.>> But actually instead of curtailing the fiscal deficit and imposing austerity on public spending in the name of responsible growth whether in inverted commas or not, which is nothing other than the handing over of banking to usurious public and private banks, there is another way to manage inflation and ensure macro economic stability and inter generational equity. With judicious zero interest perpetual bonds for judicious public indebtedness accompanied by and followed by partial or full debt jubilee (debt relief) and taxation of the rich as required the State can manage inflation if and when it may occur without curbing growth and without handing over the country to usurers whether private or upper caste public sector; and without undermining the Constitution of India. In other words it is perfectly possible for the State to have enough money it needs to ensure for all Indians their constitutional rights, provided the economists appointed to manage the money consider it a public resource for the benefit of all, to be created and destroyed so as to meet the Directive Principles of State Policy and other constitutional obligations, and not a private property of a State run by the upper castes to be used usuriously. It is an outrage in India that interest rates are not zero. If the Rupee were a public and not a private good there would be no upper caste usurers out there in the private and public sphere making money from money.

A single example suffices: the average life of a Dalit woman is 39.5 years compared to 54.1 for upper caste women. This is contrary to the Directive Principles that the State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life and that the State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations. It is impossible for a poor person to improve her life if she must borrow. Only public money provided as a grant by the State and taxed out of circulation if there is inflation can ensure that the surplus of her labour remains in her own hands.

The question the public in India should thus urgently raise in relation to the forthcoming report of the Fifteenth Finance Commission, is whether NK Singh the Chairman and the members Shaktikanta Das, Prof. Anoop Singh, Ashok Lahir and Prof. Ramesh Chand as well as the Secretary Arvind Mehta, believe that money that is to say the Rupee is a public good that must be distributed equally amongst Indians who are Dalit, Adivasi, Denotified Tribe, Nomadic Tribe or Semi Nomadic Tribe person, poor upper caste or Muslim, Christian or other Minority religion, and other backward castes and most importantly women and finally the ten per cent upper caste, or whether it is a private means for wealth creation through enclosure and appropriation of resources for the benefit of stock and shareholders. In a country with such massive poverty interest rates should be zero and money should be mainly provided to the state in interest free perpetual bonds, in order that the State can fulfil its constitutional duty unhindered by considerations of the profitability of banks.

Let us remind the members of the Finance Commission that they are bound under the Constitution to see to it that the State has the quantity and quality of money it needs to fulfil its duties as per the Directive Principles of State Policy. Structural reforms in the economy with unanticipated fiscal implications is a tautological description of precisely what the Finance Commission must engage in: it must rededicate the Rupee to the public in a country where the Constitution mandates that there is no such thing as an economy separate from the Constitution of India and the Directive Principles of Public Policy. If on the other hand the members think there is an economy that is separate from the Constitution and the Directive Principles of Public Policy they are ideologically blinded by class and caste prejudice; – just like the Supreme Court which has totally reneged on its duty to enforce the Constitution because it does not question the liberal attitude that economics is somehow separate from the Constitution of India.

In the absence of a functional Constitutional Court in India, the members of the Finance Commission should thus be required through public pressure to read the DIRECTIVE PRINCIPLES OF STATE POLICY of the Constitution of India and direct their efforts towards ensuring there is the public money of the quality and quantity required to do what the Constitution says should be done.

If the Fifteenth Finance Commission does not rise to the occasion in these desperate times, and with the Supreme Court Judges bar one or two and so many other public servants in public institutions already so discredited by their caste supremacist personal values, their Hindutva and their liberal economics, it is sure that the Union shall break up into its constituent elements. In that case each State, and indeed self-defined region or group, be it what it may, can have its own sovereign currency and constitution and be free of the yoke of the oppressive caste-austerity riddled Centre.

Anandi Sharan was born in Switzerland, lives in Bangalore and last year worked in Araria District Bihar, India. She works on trying to find the best money system to help people adapt to climate change especially in India.


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