It took until the second iteration of the Congress-led United Progressive Alliance government for a Comptroller and Auditor General report to reveal incredibly uncomfortable truths about how the government had been operating. With Prime Minister Narendra Modi’s first tenure, we already have one. It may not have been as explosive as the 2G spectrum report, but the state auditor’s conclusion earlier this year that the Modi government has been using questionable methods while putting together budget numbers is telling.
After all, this is a government that has been accused of juggling with Gross Domestic Product numbers simply to make itself look good, of suppressing a jobs report because it would reveal uncomfortable truths and of attacking the very structure of India’s statistical systems.
One of the key revelations of the report is the amount of economic activity that the government of India is undertaking that simply does not end up in the budget, with much thanks to public sector entities. In addition to having one public sector bank simply buy another to claim “divestment”, the government has also been using these entities as surrogates. This allows them to borrow money with the presumed sovereign backing of the Union government, without having to show all of that debt as being part of the fiscal deficit. This has been done for everything from Air India to MTNL to the National Highways Authority of India. The Food Corporation of India alone, in Financial Year 2018, borrowed as much as 1.3% of India’s total GDP from non-budget sources.
This year’s budget, presented in February, is no different. Though the government claimed to have nearly stuck to its fiscal deficit target this year, managing 3.4% of GDP as opposed to a projected 3.3%, a JPMorgan Chase analysis concluded that the actual public sector borrowing requirement is closer to 8.5% of GDP. Much of this borrowing seems highly questionable too, at least in the manner it has been carried out. Why, for example, is an entity like the National Highway Authority of India, with no real cash flow, borrowing huge amounts of money by itself rather than being allocated government funds?
As M Rajshekhar noted in a Scroll investigation on Monday, the management of public sector companies may need to be scrutinised much further, beyond their alleged misuse as a means of raising capital. In his report, Rajshekhar spoke to experts who said Indian oil companies significantly overpaid for stakes in a Russian oilfield owned by Rosneft over 2015 and 2016. Rosneft would, soon after, buy a refinery and port owned by the Essar group in Gujarat, in yet another deal that experts say was inflated. Essar clearly benefited from its deal, which helped save Essar Oil from bankruptcy. But questions are still being asked about why Indian state companies would pay so much to invest in a Russian oilfield where production has steadily been falling.
Amid all these revelations about suspicious financial activity and a lack of transparency, it is important not to forget that, in July 2018, Modi himself admitted that he hid economic data from the Indian public for the country’s benefit. The CAG report makes it clear that this is still happening, though it concludes that this hidden data is hardly benefiting India. The public can only hope that, with more institutions being attacked and data being suppressed, it will get a chance to eventually scrutinise what the Modi government has actually been doing with public money.