Dedicated to The Future Finance Minister

1. Who is frank and honest to tell the people of India regarding the correct state of economy of the Nation.
2. Who can take steps to bring 6 crores people in tax-net.
3. Who can recover 90% of Income Tax on total taxable income.
4. Who can reduce excise duty to slabs of 8% and 16%.
5. Who can abolish Service Tax.
6. Who can abolish Dearness Allowance.
7. Who can reduce pension from 50% of basic pay to 30% of basic pay
   and abolish Family Pension.
8. Who can reduce Fiscal Deficit of 6% of G.D.P. to 2% and reduce
   interest payment liabilities.
9. Who can give freedom from earning at the age of 65 to Indian
   Citizens through the Pension Scheme.
10. Who can make the country corruption-free on the implementation of
    Tax Laws.
11. Who can take the decisions and understand value of time.

ACKNOWLEDGEMENT

My deepest debt of gratitude is due to the following Authors or Compilers, that have played very important part in writing this book.

I have taken the support of their views, ideas, opinions and statistics in expressing my ideas, suggestions, suppositions and estimates.

INTRODUCTION :

1. Framing of India's Constitution By B.Shiva Rao, extract from the speech of Dr. B. R. Ambedkar, delivered on 25th November, 1949, in the Constituent Assembly, Selected Documents-Volume IV.
2. Indian Tax Statistic 1951-2001, published by the Indian Tax Foundation.
3. Economic Survey 2001-2002, Government of India.
4. Indian Economic Survey 2002-2003, by Aklank Publications.
5. Reading in Economics Servicing of Internal Debt, Editor, D.S.Awasthi, published by the Indian Economics Association. Two Articles (1988-89).
6. A Safe Limit for Domestic Debt, Dr. O.P.Brahmachary.
7. Mounting Internal-Debt - A serious challenge to Fiscal Policy, Dr. B. M. Jauhari.
8. "Political Leaders", Book "Man The Unknown", Dr. Alexis Carrel (Nobel Laureate).

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PART-I :- Decision Making and Value of Time.

9. Alvin Toffler, the book, "Power Shift" 1990, (Fast decision economy & Slow decision economy).
10. Dr. Raja J. Chelliah, Tax-Reform Committee Report, 1991-1992.
11. Citizens Rights, Judge and State Accountability by A.G. Noorani.

PART-II :-

12. The Fifth Central Pay Commission Report.
13. The First National Judicial Pay Commission Report, Mr. Justice Shetty.
14. Budgets 1991 to 2003, Taxmann Publication.
15. D.S. Nakara Vs. Union of India, AIR-1983, Supreme Court, page-130 (A.I.R. Publication).
16. Constitutional Law of India, by H. M. Seervai, Volume-I, 1991-Edition, (D.S. Nakara's Judgement criticized).
17. Pension & Provident Fund Liability by A.B. Rajwade, published in Business Standard, dated on 18/04/2003.
18. Statistical Outline of India 2001-2002, Tata Services Ltd.,

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PART-III :-

19. Black Money in India by Arun Kumar.
20. Direct Taxes, Ready Reckoner by Dr. Vinod K. Singhany, published by Taxmann. "List of perquisites allowances not taxable."
21. Kelkar Committee Report On Direct Taxes.
22. A Letter to an assessee in U.S.A., by Christopher Cox, Chairman of the House Policy Committee, Report on the United States Government-1999.
23. Income Tax Rules-1976, Part-IV & V of Income Tax Rules.

PART-IV :-

24. Freedom From Earning Through Public Provident Fund, by Vasant J. Desai.
25. Kelkar Committee Report on Direct-Taxes.
26. Alvin Toffler, book, "Power-Shift, "Bureaucracy".
27. Standard & Poor Rating on 19th September, 2002. (Down-graded India's Local Currency Sovereign rating to junk status.)
28. Allen Tough, "Critical Question about Future", (A sample pledge-I).
29. "Corruption in India", by Shri N. Vittal, published by Academic Foundation, New Delhi.
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30. Globalisation & Its Discontents, Mr. Joseph Stiglitz, (Winner of the Nobel Prize for Economics-2001.)
31. Control Over Public Finance In India, by S.P. Ganguly,
32. "Corruption & Prime Ministers", by Shri T.C.A. Nivasa Raghavan, published in Business Standard dated on 19th August, 2002.
33. Down Grading Rupee Debt to Junk. The Relevant extract from the Article of "Ila Patnaik in Business Standard", dated on 02/10/2002.

PART-V :-

34. The Editor, The Times of India, for publishing my letters and incorporating editorial of the Times in the Book.
35. The Editor, The Indian Express.
36. The Editor, Business Standard.
37. The Editor, Economics Times.
38. The Editor, Economics & Political Weekly.

Introduction to Web

The manuscript of the book "India in Debt Trap-2007? Remedies" was ready in the month of September, 2003. I had tried to contact wellknown publishers but the Oxford University-Press, Sage Publications, Tata McGraw Hill Publishing Co. Ltd., and some other publishers declined to publish the book. I decided to put the above book on the website without any charge.

I had sent the manuscript of the book to the World Bank, New Delhi, for the foreword to the book. Shri Sumir Lal, Advisor, External Affairs of the World Bank has observed in his letter dated 6th October, 2003 "You have indeed provided a comprehensive analysis of this urgent and complex subject." The letter dated 6th October, 2003 is put on the website with this Introduction. The Hon'ble Shri Rangrajan, Chairman of the Twelfth Finance commission through the letter dated 10th December, 2003 has observed, "You made a number of valuable points. India's growth rate can be sustained only if the fiscal system is in good shape." The letter dated 10th December, 2003 of Shri Rangrajan is put on the website.

I had sent the copies of the book to the eighteen dignitaries including The Hon'ble Prime Minister, The Finance Minister, and other Ministers and Secretaries, who were likely to take decisions on the Budget of year-2004. Most of the dignitaries had acknowledged the receipt of the book.

Original preface written in October, 2003 is also included. The contents of the book are in five parts with the Introduction, which is separately explained.

The Budget for 2004-2005 was approved by the Lok-Sabha on 5th February, 2004. A letter addressed to the Finance Minister is enclosed too.

I am pleased to thank Shri K. H. Kaji, Senior Advocate, Eminent Tax Consultant of Gujarat and Former acting Advocate General of the Gujarat High Court for writing his Foreword to the book. I had requested him as I have suggested number of remedies to reduce the deficit and increase the revenue, which only the tax consultant can appreciate.

PREFACE

The International Monetary Fund (I.M.F.) new Managing Director on 16th June, 2000, warned India against its mounting Fiscal Deficit saying, this would worsen the problems of Fiscal Consolidation even while observing that its ambitions 8% to 10% was achievable in the medium term.

"The Central Finances, and the State Finances will have to be consolidated, as otherwise, India could embark on much more difficult problems than today." Kohler told reporters that, It was not I.M.F.'s approach to lecture on the country's problems. (The Times of India).

The I.M.F. came down hard on India's Fiscal Deficit, at 11% of G.D.P. which was deplorable after consultations between its executives and India on 19th June, 2000 and suggested seven Ways and Means to reduce deficit.

The Times of India had reported that 11th Finance Commission has increased, share of States from 29% to 33.5% increasing additional liability of the Central Government Rs.7,000 crore to Rs.10,000 crore per year. The Times of India had published my letter of 16th July, 2000 which is reproduced in Part-V - Letters. I.M.F. had written a letter in month of June, 2002 to the Central Government regarding Fiscal condition, which is not published but, News Item was published on 28th August, 2002. The I.M.F. warnings have prompted me to write this book.

The Chief Economist of the World Bank, Mr. Nicholas Stern had warned (The Times of India, on 23rd May, 2003) that India must control its huge fiscal deficit in the interest of long-term economic health. He added that the combined fiscal deficit of the Federal and State Governments were a matter of concern. The figure is close 10% of G.D.P. now, one of the highest in the world.

The Central Government is not able to meet Non-Plan Expenses, namely:-

• Interest Payment
• Defence
• Pension
• Pay
• Subsidies
• Grants

From revenue receipts and has to borrow about Rs.95,595 crore for year 2001-2002 and about Rs.95,377 crore for year 2002-2003. The entire plan expenditure was from borrowed funds.

For year 2003-2004, the total expenditure is estimated at:

Rs.3,17,821 Non-Plan Expenditure
Rs.1,20,974 Plan Expenditure
---------------
Rs.4,38,795 crores, Total Expenditure.

While revenue receipts are estimated at Rs.2,53,935.00 crores. The Central Government will not be able to meet day to day expenses, namely:- Non-Plan expenses and Rs.63,880 crores will be spent from borrowed funds.

The entire plan expenditure Rs.1,20,974 crores will be from the borrowed funds.

Suggestions:

The suggestions are made in the book with the following objects.

• Steps to take reduce Interest Payment Liability.
• To reduce expenses on Pay and Pension, which is about 45% of net revenue receipts after deducting interest payment liability amount. The Corporate Sector and the foreign developed countries spend 8% to 10% on the salaries etc.
• To control black money and bring 6 crores assessees in tax net.
• To provide pension scheme for assessees and recover income-tax at the low rate and abolition of all tax-exemptions.
• The suggestions are made with personal income-tax only and target is to recover Rs.1,50,000 crores (Rupees One lac fifty thousand crores) income tax while receipts from Income-Tax was Rs.81,000 crores in year 2002-2003.

Similar attempt can be made for Corporate Taxation, Excise and Custom Duty.

There are 13 crore assessees in U.S.A. out of population of 24 crores. U.S.A. recovers 92% of Income-tax on total taxable income and India does not recover even 20% of total taxable income. In U.S.A. a person earning about 17,000$ per year, is a poor person, but he pays income tax as exemption limit is about 7,000$ per year.

There are number of articles published in daily Newspapers and Journals regarding economic condition of India, but specific remedies are not suggested to increase revenue, reduce debts and expenditure. An attempt is made to pinpoint above aspects of the economy.

I love my country is the only qualification to write this book as an ordinary citizen of India.

Shri C. M. Vasudev, Economic Affairs Secretary had observed on his retirement, 31st July, 2002 in his interview with the "Business Standard":

"Several times politics over-rides economic considerations despite a decade of liberalization, India has not been able to separate economic from politics."

We hope the N.D.A. Government will overcome this weakness in implementing economic measures suggested in this book or such similar measures, which can achieve above objectives.

The World Bank
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCAITION
New Delhi Office, 70, Lodi Estate, New Delhi - 110 003 INDIA
Telephone:2461724/24619491 Cable Address : INTBAFRAD Mailing Address: P.O.Box 416 Facsimile 24619393

October 6, 2003

Mr. Vasant J. Desai Advocate
4 B.Jadav Chambers
1st Floor, Ashram Road
Ahmedabad 380 009

Dear Mr. Desai,

Thank you very much for the manuscript of your book "India in debt trap 2007? Remedies". You have indeed provided a comprehensive analysis of this urgent and complex subject.

Unfortunately, we will not be able to provide a foreword to the book as our policies do not permit individual endorsements of this nature. In any case, we feel your book will carry greater weight and authenticity if you are able to get some eminent Indian commentator to provide the foreword.

We are therefore returning your manuscript and are also enclosing a copy of the India Development Policy Review, in which you have expressed an interest in your letter.

We wish you all the best in your endeavors.

Sincerely,
Sd/- Sumir Lal
Advisor, External Affairs

Attachment

C. RANGARAJAN CHAIRMAN
TWELFTH FINANCE COMMISSION JAWAHAR VYAPAR BHAWAN, 1, TOLSTOY MARG, NEW DELHI - 110 001.

D.O.No.CH/TFC/PS/2003-8095

December 10, 2003

Dear Shri Desai,

I am sorry for the delay in responding to your letter of October 6, 2003. I have received the copy of your study. You have made a number of valuable points. India's growth rate can be sustained only if the fiscal system is in a good shape.

With regards,

Yours sincerely

Sd/-
(C. RANGARAJAN)

Shri Vasant J. Desai
Advocate, Supreme Court
4-B, Jadav Chambers
1st Floor, Ashram Road
Ahmedabad - 380 009.

FOREWORD
BY KANISHKA H. KAJI FORMER ACTING ADVOCATE GENERAL OF GUJARAT HIGH COURT AND TAX CONSULTANT

Office :
503, Samruddhi, Sattar Taluka Society,
Opp. Old High Court Lane, Navjivan,
Ahmedabad - 380 014.
Tel : (079) 7542786
Fax : (079) 7544264
H.C.Chamber No. 102, Tel:7499068
Mobile : 9825036498
Email : khkaji@hotmail.com
khkaji@sify.com

I glanced through considerable portion of Mr. Vasant Desai's book on "India in Debt Trap - 2007? Remedies".

It is really amazing for a non-economist like my lawyer friend Mr. Desai to have delved into India's malaise on fiscal front for the last 50 years, and to come out with remedies which would put India on in a very happy position miles away from debt trap. The facts and figures set out are from unimpeachable sources and show how steps suggested by reports of various committees & commissions have been stalled if not ignored by the Government.

India has to be on way to becoming a "fast moving economy" from the present slow moving economy which is the result of want of courage & boldness on the part of the Ruling party and continuing to pamper the vote banks & the soft economics of borrowings to meet interest payments and bloated administration costs. If India wants to succeed it must become fast decision economy from slow moving economy.

Mr. Desai has very well said :

"We Indians suffer from three disabilities, viz

1. We do not have brevity of expression.
2. We do not take decisions.
3. We do not have value of time."

Only if suggestions & proposals contained in several reports cited by Mr. Desai had been bonafide accepted & not merely on paper, and speedily implemented things would have been radically different on the fiscal front instead of the Debt Trap looming large before us. Classic example is the delay in construction of Narmada Dam owing to misguided environmental activits supported by Foreign Countries with ulterior motives.

Profligate administration and non plan expenditure - uncontrolled and increasing unabatedly coupled with slow paddling on subsidies, tax rebate & exemptions to pamper the rich & even not so rich populace has raised expectations of the vocal population beyond all reason, causing loss of huge revenue to the Govt. which it can hardly afford which shortfall it meets by printing notes. The recent announcement by the Finance Minister in the interim Budget about merging of DA with basic pay of Central Govt. Employees shows total unconcern about chain reaction in case of State employees & Employees of Municipal Corporations and would increase the wage bill substantially while crying hoarse to reduce revenue expenditure.

Self engrandisement by MPS & MLAS by passing bills without any debate making huge unwarranted increases in their emoluments including life long pension even after being MP or MLA for a day should shudder the minds of all sane citizens who have the interest of the country at heart.

Suggestions for restructuring of Income Tax rates, rebates, exemptions are very radical & no Govt. I dare say would be bold enough to implement even some of them. Soft paddling on exemptions & rebates u/s.80L, 88, 88B etc. which do not exist in any other country is unpardonable. Any honest Govt. whether single party or coalition Govt. should be bold enough to implement many valuable suggestions made in this treatise which will put things on right tract. Even if our eyes go round the world and see how tax policies bring about fiscal discipline and just taxation, it will be evident that we have gone the wrong way all along inspite of all facts showing the other way and are sinking deeper & deeper in the malaise of corruption, incompetence, tardy implementation of necessary fiscal reform, profligate administration costs and living under false mirage of economic resurgence on account of recent "feel good factor".

In the Chapter IX in Part III on Tax Rate & Pension Scheme Mr. Desai had made valuable suggestions for providing Pension to citizens after a certain age while making every income taxable even at low rate and at the same time making citizen contribute certain percentage of tax towards pension which would be available to him on retirement.

Detailed working has been given which shows that while the assessee pays tax, may be at low rate, and he is put on tax Roll while ensuring that he gets pension on retirement in certain proportion to taxes paid by him. The present idea of the Government seems to go on increasing the tax exemption limit from Rs.50,000/- to Rs.1 lac, which is a retrograde move not found in any other country which taxes even much lower income, may be, at low rate. Social security can only be legitimately provided if all pay taxes and contribute towards social security.

The Chapter IV Part IV on corruption reveals less known facts on corruption and Politicians and the axis between them. The extracts from an article by Mr. T.C.A. Srinivasa Raghavan on corruption & the Prime Ministers shows how the Investigating Agencies, the rule of law and the Judicial arm of the state are coerced, subverted with the result that no corrupt politician or bureaucrat is convicted by Courts and prosecution drags on for decades during which period, witnesses are bought over, evidence lost and every one has lost interest in the prosecution. Likes of Sukh Rams flourish and political alliances made for short term gains while the country loses on the moral front immensely. Nepotism, favoritism and family engrandisement goes on at the highest level and nothing happens to anyone who has a Godfather in political arena.

Lest all of us despair as to what a citizen (non aligned with any political party) can do, Mr. Desai has valiantly pointed out in Part IV Ch.VII "what we can do". It requires great courage, strong determination, and perseverance to expose, prevent & cure the rot set in since last 50 years. There are great dangers to life & property of persons who try to set things right as shown by officers & social workers like, Dubey and others who have laid down their lives trying to succor to the ailing mother India who is sucked by leeches. But we should not lose heart. May be what we contribute to Mother India's well being may be a drop in the ocean but still we can show the way. I am sure there are people, amongst politicians, bureaucrats and citizens who are pained at what is going on & who would love to do something to lift the country from the cesspool of corruption, incompetence, procrastination & soft paddling fundamental reforms in the field of economics, trade, monetary matters. Merely shouting about "feel good factor" or "shining India" may bring only temporary elation and feeling of joy but such ephemeral slogans would not carry us far.

"Tighten the belts" & let us start with profligate Politicians the ministers & bureaucrats & the VIPs and show by example what can be done. Ounce of practice is better than tons of preaching. "Example is better than precept" - we had enough of preaching. Let likes of the Mahatma Gandhi, Vallabhbhai Patel & Lal Bahadur Shastri come up once again and restore sanity amongst people who rule us.

I wish Mr. Desai all success in the new venture as an Economist & fiscal reformer and earnestly hope that the national crippling financial malaise is recognized & appreciated and remedies suggested, implemented.

AHMEDABAD
20th February, 2004.

Sd/-
(K. H. Kaji)
Former Acting Advocate General of Gujarat,
Former Standing Counsel to
Income Tax Dept.Gujarat,
President Emeritus, Income Tax
Appellate Tribunal Bar Association, Ahmedabad.

Letter to Finance Minister

Respected Shri Jaswant Singhji,

Heartiest congratulations for reducing the fiscal deficit in revised budget for 2003-04 from Rs.1,53,000 crore (estimated) to Rs.1,32,103 crore. It was achieved as :-

• Tax recovery had increased Rs.3400 crores.
• Rs.4200 crores dividends from PSUS received more than the estimated amount.
• Loan amount of Rs.46,000 crore recovery from the States under the scheme.
• Rs.5200 crore subsidies paid less because food mountain disappeared.
• PSUS bears subsidies on gas and kerosene partly.
• Low interest rate and defence had not spent Rs.5,000 crore.

You have done a good work in reconstructing the Unit Trust of India because you are a fast decision maker.

India has got the lowest tax G.D.P. ratio 8.6%. You have presented two budgets but you have not taken a single step to increase the tax revenue. On the contrary, you have reintroduced the deduction under section 80L from Rs.9000 to Rs.12000 + 3000 and senior citizens tax rebate under section 88B of I. T. Act was raised from 15,000 to 20,000 Rs., thereby you have excluded two crores eligible tax payers from the tax-net, who can have income of Rs.3 lacs provided they take advantage of the Provisions of Standard Deduction, 80L and 88 of I. T. Act.

You were not able to withstand the political pressure from the office of the Prima Minister at the instance of Member of Parliament from Delhi and the President of the Bhartiya Janta Party. Basically, you were against merger of D.A. with pay, but at the last minute the decision was taken and 50% of D.A. will be merged with the basic pay.

The merger of 50% of D.A. with the basic pay is to give death blow to the finances of Central Government and States Governments. At present, number of states are not able to fulfil the obligations regarding the payment of pay and pension and development works have suffered. The recommendations of the Fifth Central Pay Commission to reduce 30% of Staff, 4 national holidays, 7 casual leaves and 6 days working are not adopted and new scales were given to the Central Government staff who work only 193 days and enjoy 172 days in a year, which is a record holidays for any employee in the world. About 38 lacs Central Government Pensioners take away Rs.24000 crore pension per year which was Rs.3211 crore in 1991-92. The future generation has to pay more taxes without fault on their part on account of your decision.

You have estimated revenue deficit of Rs.89,000 crore for year 2004-05. You have stated in an interview that revenue deficit will be nil by 2006. It is provided under the Fiscal Responsibility and Budget Management Act to abolish the revenue deficit completely on 31st March 2008.

You will have to levy & recover tax and reduce expenditure to the extent of Rs.1,25,000 crore in order to reduce the revenue deficit to Zero.

I wish that you become next Finance Minister and achieve the goals, which I have mentioned in Dedication to the Future Finance-Minister.

I wish that you should not rely on uncertain monsoon and growth, which is also uncertain due to the nature of monsoon.

I wish that as a new Finance Minister, you have the courage of convictions and stick to your convictions and stand firm to implement them or prefer to resign as a Finance Minister, because there is nothing to lose at your age.

I am also of your age and treat this as an old man's tak-tak (Buk-Buk) to you.

Ahmedabad.
20/2/2004 V.J.DESAI

IMF economists prick India's feel-good balloon

From Economic Times - 19/1/2004

Economists from the International Monetary Fund and top universities are playing party poopers at a time when the BJP led government is attempting to stoke the feel-good factor in the run-up to the polls. In the current economic scenario, the signs of a financial crisis are imminent and unless a major fiscal adjustment process is kicked off, a debt crisis could be in the offing, they have warned.

At a conference on fiscal policy in India, organized by the NIPFP and the IMF Nouriel Roubini of New York University and Richard Hemming of IMF said that many fiscal indicators in India look worse compared to other emerging market economies with a similar or lower credit rating.

Similar unflattering views on the financial state were presented by Richardo Hausmann of the Kennedy School of Government, Harvard University and by Catriona Purfield of the IMF. According to them India's economic structure has allowed it to tolerate levels of debt that would make other countries insolvent. The current debt ratios of India are only comparable to those of countries that have had serious payment difficulties.

What has surprised most of them is the fact that despite these ratios, there is no manifest symptom of a fiscal crisis. This is because nominal interest rates have been sliding, the maturity of debt is longer, capital inflows are buoyant and, as they have pointed out, due to the low volatility in the debt service to revenue ratio.

Hausmann and Purfield have warned that current trends suggest that India is on an unsustainable path and that it eventually would have to adjust one way or other, with or without a crisis.

According to Roubini and Hemming, India mirrored, in some important dimensions, the vulnerabilities of countries that have experienced sovereign defaults or near-default situation like Russia, Ecudaor, Argentina, Pakistan, Urugauay. This is when viewed on parameters like fiscal deficit and primary deficit as a percentage of GDP, public debt as a share of GDP, a heavily managed exchange rate, reliance on banks for financing of the deficit and a vulnerable banking system. However, there has not been a crisis due to India's limited liability dollarisation, a large chunk of debt being rupee denominated, lower external debt, lack of currency mismatches, smaller current account imbalances, besides financial repression and capital controls. The recipe provided by both the set of authors is the same - fix the roof now when the sun is shining.

A safe Limit for Domestic Debt.
Dr. O. P. Brahmachary,
Reader and Head, Department of Economics,
Dr. R.M.L.S. College, Muzaffarpur.

Internal debt has increased 55 times during 38 years of planning from Rs.2022 crores in 1950-51 to Rs.1,44,453 crores in 1988-89. This increased debt is due to eat up revenue whereas Non-plan expenditure is done on the cost of development projects. Utilization of domestic debt has been controversial. Even R.B.I. the Government Institution, is also displeased with the phenomenon. Hence they have recommended to restrict the domestic debt.

Policy Recommendation :

Thus R.B.I. recommended that "it is, therefore, necessary to bring about a phased reduction of revenue-deficit by arresting the growth of non-plan revenue expenditure and by increasing the Tax-GDP ratio". Report further observed the fiscal stance, therefore, should be to evolve a policy frame work which would keep the domestic debt at a reasonable level.

The recommendations of R.B.I., thus, be put as follows :

• Revenue deficit be reduced.
• Non-Plan expenditure be arrested.
• Domestic debt be kept under limit.

Revenue deficit may be reduced by prompt and proper collection of taxes without introducing the new taxes and by enhancing the profit of public undertakings.

Non-plan expenditure may be arrested by cutting down the administrative and non-recurring expenditure of Govt. Austerity in administration, political pomp and show and simplicity of living of leaders may restrict the non-plan expenditure.

Domestic debt may be brought under legislative control as Americans and Canadians have done. In U.S.A. "the provisions limiting borrowing differ widely. In most jurisdictions a maximum usually expressed as an absolute dollar sum and one relatively low in terms of present-day expenditure level, is set. Either this figure cannot be exceeded at all or it can be exceeded only with the approval of the voters at an election." They further explained "these constitutional restrictions have unquestionably lessened State borrowing is so doing they have, perhaps, reduce waste." The legal restrict on domestic borrowings is not contrary to the constitution rather Article 292 of Indian Constitution empowers Parliament to determine the limit of borrowing. The measure to enact a law to fix the limit on the public borrowing has been advocated by Dr. B. K. Madan, Public accounts Committee and the Comptroller and Auditor General of India and Sukhmoy Chakravarty. Sooner the decision is made, better would be for the economic development of India.

Mounting Internal Debt - A serious Challenge to Fiscal Policy
Dr. B.M.Jauhari

Deptt. Of Post Graduate Studies & Research in Economics,
M.M.H. College, Ghaziabad

We have come into the danger zone of a debt trap. During 1988-89, the total liabilities of the Government were around Rs.2,24,000 crore with a total interest burden of Rs.14,000 crore. The burden of interest now forms the largest single item of the non-plan expenditure, higher than the defence which is at Rs.13,000 crore. It is expected that during 1989-90 the Government will borrow around Rs.27,000 crore and half of it will be merely used to discharge the interest liability. It has been further pointed out that by 1988-89 the borrowings of the Government would exceed its assets by Rs.40,000 crore. Every creditor of the Government will get back only 82 paise in a rupee to day if the Government had no power to print more currency notes. Today the solvency of our Government is assured by its mint alone.

The negative net worth of the Government, more precisely the liabilities of the Government in excess of its assets has been increasing quite sharply in the 1980s. The budgetary deficit has been rising substantially. The results of this reckless spending are becoming evident and consequences disastrous. For every rupee printed and circulated, the prices have responded more than proportionately. Deficit on revenue account of the Central Government since 1979-80 have created serious distortions. Revenue expenditure has increased faster than revenue receipts since 1979-80 at an average 14 percent annually against a growth in revenue receipt of 11 percent. It has started telling quite adversely on the size of real national income and the saving of the society. The Government dependence on borrowing has now reached such levels that it has almost no resources to finance the current and the next plan. The Annual Reports of the Comptroller and Auditor General of India have also pointed a gloomy picture and have warned the Government on this score. The burden of internal public debt is assuming serious proportions. The situation calls for urgent corrective measures, curbs and controls on the printing, raising and spending spree of the Government. It needs a co-ordinated approach and an expert advice from fiscal, monetary and growth experts, so that the nation comes out of this debt or death trap at the earliest. It needs sound management, realistic planning and reappraisal of our policies. Let us not fall a victim to the trap where, "Nations, once they began to borrow, would be unable to desist until they reached the point of bankruptcy."

Note : Above two articles are taken from the Book "Readings in Economics Servicing of Internal Debt". Editor Dr.D.S.Awasthi, published by the Indian Economic Assocaition.

I am thankful to the writers and the Association, according to them, steps should be taken considering finances of 1988-89 years and warned :

"Nations, once they began to borrow, would be unable to desist until they reached the point of bankruptcy.