SC Garg Became Fall Guy For A Growing Financial Mess

It is rare indeed for a bureaucrat as senior as the Finance Secretary to be pushed out the way that Subhash Chandra Garg has been.

Garg declared he was taking voluntary retirement shortly after it was announced that the Appointments Committee of the Cabinet - which at one point was a real thing, and now is, like most things in this government, basically Prime Minister Narendra Modi and Amit Shah making decisions - had moved him to the Power Ministry. And when the unusual happens in New Delhi, there is always speculation. Why, precisely, was Garg - till recently the blue-eyed boy of the Prime Minister's Office - essentially fired? (You don't fire a Finance Secretary, but shifting them to the Power Ministry comes pretty close to it.)

We may never know the whole story, but what we do now know is that the national accounts are scandalously misleading. The speech the Finance Minister delivered on Budget Day mentioned no numbers - and it appears now that it was a deliberate choice, as if you look at the numbers hard enough, they break down. A senior member of the Prime Minister's Economic Advisory Council, Rathin Roy, wrote in the Business Standard that India is going through a "silent fiscal crisis".

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Nirmala Sitharaman and SC Garg (right) at media briefing.

The figures presented in the Budget for revenue are contradicted by the government's own Economic Survey, released a day before the Budget. In essence, Rs 1.7 lakh crore is missing in the Budget documents. It hasn't been pinched: that's how much less was collected last financial year than expected. Rs 1.7 lakh crore is not exactly a small amount. Whatever else you may think of Modi's Finance Ministry, you have to at least admire its self-confidence. Few people are self-assured enough to imagine they can successfully hide a missing Rs 1.7 lakh crore.

(According to the Comptroller and Auditor General, the fiscal deficit number that the Budget presented is also incorrect. Thanks to "hidden" borrowing by the centre, instead of 3.4 per cent of GDP, the fiscal deficit is closer to 5.8 per cent of GDP. That's the sort of number we associate with crisis years like 2008-09).

This is mismanagement on a colossal scale. How did we get here? First, the Goods and Services Tax or GST. The government has demanded credit for passing the GST when its predecessors failed to. But then it must accept that it failed to design it properly, the tax rates are incorrect, it gave too much away to compensate the states, and its implementation has been botched. The bill for this failure of administration and expertise has now come due. Almost all the shortfall is thanks to the GST bringing in less than expected. Do we still want to give credit to the government for passing this GST? Perhaps not.

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SC Garg (third from right) was the senior-most among secretaries in the Ministry of Finance.

To cover up the complete absence of revenue, the government has turned into a bully. We now know why the Finance Ministry under Garg and his ministers was so determined to force the Reserve Bank of India to part with its well-guarded treasury. We now know why it has raided the small savings fund - which is where your provident fund money and mine is supposed to be locked up tight - to finance its own priorities, like saving Air India. We now know why it has kept petrol prices so high, why it is forcing one public sector unit to buy another and calling it disinvestment, why it ordered public companies like the Food Corporation of India to take on debt it can't afford. All this is because it wishes to fill this gaping hole in the accounts while also ensuring the people of India don't find out about this unprecedented mismanagement.

It is possible that one of the many measures meant to deal with this fiscal gap was the decision to raise money abroad? In her budget speech, the Finance Minister announced that for the first time in history India would issue sovereign bonds in foreign currency. In essence, the government of India will now start borrowing from foreigners in foreign currency. This is an extremely divisive measure. There are many reasons why it is a good idea, but a panoply of economists, including several former governors of the RBI, have warned against it. Borrowing in foreign currency is like a drug, they argue. At first it's easy and feels good - all the money you could want, and cheap. But if you get hooked on it, it can take over your life. Some reports suggest that it was when the Prime Minister finally understood what the Budget actually proposed that it was decided Garg had to go. But, again, we will never know.

What does this fiscal gap mean? It means that either we have to start borrowing a great deal, which will build up to an inevitable and humiliating financial crisis, or we sharply raise taxes - 25 per cent GST, anyone? Or we crunch expenditure. What shall we cut? Defence? Farmers' support? Education? Swachh Bharat? Something will have to go. Something already has - the Economic Survey pegged spending in 2018-19 as being much lower than the Budget admitted. A shortfall of Rs 1.7 lakh crore - a gap that is only likely to get wider as time passes - is something that affects all Indians and will have a measurable effect on their life.

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SC Garg (left) at a ceremony in the Finance Ministry last month before the budget.

Certainly, one way or another, the responsibility for this humungous error rests with the political leadership. Bureaucrats have as much power as the politicians give them. It is pointless to make of one a scapegoat, as some appear to want to do with Garg. Good bureaucrats make happen what their political masters desire. If the government wants the impossible, its officials will declare that possible, and hide the numbers. In this case, the government wanted to appear fiscally responsible, while also spending enough to win re-election, even though the economy was slowing and the GST was underperforming. That was an impossible ask. The responsibility for this crisis lies with those who ordered it, not those who implemented it.

A government that had some minimal economic expertise, such as almost all of our governments in the past decades, would have avoided this pitfall. But this government dislikes experts - they aren't Indian enough, remember? So it has lost them all. A government that trusts outsiders instead of insiders would have managed the situation. But this government is run by a tiny, closed coterie. Most importantly, a government that was less focused on managing the headlines and more on managing the economy - to use Arun Shourie's thunderous phrasing - would have revealed the problem well in advance and made open corrective measures. But this government is not just incompetent, buit also distrustful, closed and obsessed with the headlines. As a consequence, India is facing a fiscal crunch, and Indians were not told. For this kind of mismanagement, more than a Finance Secretary ought to go.

(Mihir Swarup Sharma is a fellow at the Observer Research Foundation.)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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