* Principal Director (Research & International Relations), Office of the Comptroller and Auditor General of India
According to Article 292 of the Constitution of India, the executive power of the Union extends to borrowing upon the security of the Consolidated Fund of India within such limits, if any, as may from time to time be fixed by Parliament by law. This has to be read with Entries 35 and 37 of List I of the Seventh Schedule which give Parliament exclusive power to make laws with respect to 'Public debt of the Union' and 'foreign loans'.
Speaking on the draft Article in the Constituent Assembly on 10 August 1949, one member clarified his intention to make sure that later on Parliament would devote greater attention to borrowing which imposed heavy obligations upon not only the present generation but future generation also. Another member elaborated further and stated that Parliament should lay down in an Act every year how much could be borrowed. Yet another member felt that if no law is made specifying the limits of borrowing it would be certainly the fault of Parliament. He added : "I should have thought it very difficult to imagine any future Parliament which will not pay sufficient or serious attention to this matter and enact a law". He conceded that' 'there might even be an Annual Debt Act made by Parliament prescribing or limiting the power of the Executive as to how much they can borrow within that year".
For the first time a macro review of the public debt of the Union Government was attempted by the Comptroller and Auditor General of India (CAG) and the results of the review were incorporated in his Report for the year ended 31 March 1987 (No. 10 of 1988). It covered analyses of deficits and debts, brought out the consequences of the increasing trends in them, and indicated the need for improvement in financial management. It also drew attention to the fact that no ceiling on public debt had been prescribed. The aim was "to highlight whether the debt management process has been carried out with due regard to economy and efficiency" and to "help Parliament and Government to take such corrective action as may be required".
The Finance Minister in his budget speech (July 1991) pointed out that the "crisis of the fiscal system is a cause for serious concern". The increasing fiscal deficit having to be met by increased borrowing with the onerous burden of debt servicing, he emphasised that "Without decisive action now, the situation will move beyond the possibility of corrective action." He further stated that "we must make conscious effort to reduce the internal debt of the government and the external debt of the nation, so that we rely more and more on our own resources to finance the process of development." Attempts are unfolding to reduce the fiscal deficit and thereby to limit the borrowings to manageable level.
In view of the increasing importance of controlling public debt, one of the themes discussed in the 13th International Congress of Supreme Audit Institutions held during June,1989 in Berlin was "Auditing the Public Debt". The basic paper on this subject prepared by the Tribunal de Cuentas, Spain, recognised the possibility of statutory limit to borrowing powers of governments. The position in this regard as gleaned from the responding country papers is as follows :
Cameroon: In Cameroon the operational budget is entirely financed by its own resources. Borrowed resources are allocated to the financing of investment projects previously defined by the five year plan. The Finance Law authorises the government to enter into loans within very precise limits. The limit is specified by the fixing of a ceiling which must be scrupulously respected at the time of the signing of agreements. The persons providing the funds are obliged to require a certificate of non-exceeding of authorised ceiling issued by the Minister of Finance.
Cyprus: Although there is no legal limitation to the Republic's total public borrowing, limits are imposed on certain items, for example, advances to government by the Central Bank may not exceed twenty five per cent of the estimated ordinary revenue of the government.
Denmark: In Denmark the Minister of Finance is authorised by special legislation to contract government loans within a specified limit. The Finance Committee of the Danish Parliament is kept currently informed about entering into foreign loans and restructuring of loans, with reference to the limits of the framework legislations.
FRG: In the case of the Federal budget of the erstwhile FRG, short term borrowing to maintain liquidity when there was a temporary excess of expenditure over revenue, was not to exceed eight per cent of the total budget. The Federal Government primarily took loans in such cases in the form of an interest-bearing current account loan from the Deutsche Bundesbank (Central Bank) limited by statute to DM 6 billion. As regards loans taken to finance expenditure, they could only be taken if they were authorised by law. The legislation set an upper limit to total borrowing in a financial year. Borrowing authorisation was contained in the annual Budget Act. Following the Constitution, the Parliament could not set the limit higher than the total capital expenditure budgeted for the year. The ceiling could only exceptionally be exceeded if it was necessary to avoid disruption of macro-economic equilibrium.
Malaysia: The Malaysian Constitution provides the legal framework under which the government can undertake borrowings both from domestic and foreign sources. There are various laws and legislations governing the powers and procedures to borrow. The law requires that all loan agreements signed by the government need to be tabled in Parliament. Through respective legislations, Parliament sets the debt level of the public sector in absolute monetary terms for external borrowings, Treasury Bills, Extended Credit (Government securities).
Peru: In Peru while approving the income budget, the Congress authorises the Executive to arrange both domestic and foreign loans up to a specified amount. The Annual Public Debt and Public Budget Laws of the Republic regulate the scope and amount of public borrowing.
Portugal: The Parliament of Portugal sets annual limits in absolute monetary terms for the growth of domestic and foreign indebtedness (in the case of latter in US dollars).
Seirra Leone: The State borrowing is subject to the approval of the Parliament of Seirra Leone which sets the limit.
Thailand: In Thailand the Regulations on Borrowing, 1959 as modified in 1974 state as under:
Need for the Limit: The persistent revenue deficit, and consequently higher borrowing to finance part of current expenditure have accentuated the debt burden of the Government of India. The question of fixing a statutory limit to borrowings has therefore been revived. At present there is no direct legal control in regard to public debt incurred by government; nor is there any control over the expenditure on debt charges (including interest) which are charged on consolidated fund without being subjected to vote of Parliament. The Public Accounts Committee of Parliament (PAC) had pointed out that the existing arrangement of indicating the borrowing programme in the five-year plans and the annual budgets and having discussions thereon in Parliament was not satisfactory.
For an effective financial control, the Parliament should be in a position not only to legally authorise the levy of taxes (Finance Act) and the appropriation of moneys from the consolidated fund for expenditure (Appropriation Act) and watch compliance, but also specifically authorise and watch the raising of resources through borrowing. Unless the authority of Parliament in regard to borrowing is also legally enforced under Article 292 of the Constitution there can be no meaningful financial control over the executive. While it may be the responsibility of the executive to determine the source and terms of borrowing depending on the market compulsions from time to time, it is certainly the duty of the Parliament to regulate the quantum of the borrowing.
Built-in Flexibility: The arguments against statutory limits to government borrowings mainly centre around the need for flexibility in times of emergency such as natural calamities, external threat and other unforeseen developments. Such arguments would equally apply to expenditure control through Appropriation Act. There is therefore a constitutional provision for drawal from Contingency Fund of India as well as for excess grants by Parliament under Article 115. As already suggested by the PAC, the law fixing the limits to borrowings might also have "some scope for certain built-in flexibilities subject to ex-post-facto approval of Parliament". The main argument would thus fall through on closer scrutiny.
Annual Public Debt Act: There are various options of fixing limfts to the public debt, like yearly ceiling in absolute terms or as a proportion of GDP or of total government expenditure, or ceiling for a five-year period broadly in relation to public investment as approved in the national plan. In India, the parliamentary control over government expenditure is being exercised through Appropriation Act specifying the amounts for various purposes in absolute terms annually, and the control over borrowing also ought to be through Public Debt Act specifying the monetary limit to borrowings annually. This is indeed what was envisaged by a distinguished member of the Constituent Assembly. The amounts of borrowings indicated in the annual budget broadly under Internal Debt comprising Treasury Bills, Market Loans and others, and External Debt, as agreed to or modified by Parliament, could be authorised through a Public Debt Act subject to enactment of a supplementary Act in case of need during the year and regularisation of the legitimate excess, if any, even after the year.
Public Debt Accounts: The question then arises as to how to ensure that the ceilings are adhered to properly. In the case of Appropriation Act, the form of accounts prescribed by the President on the advice of the CAG in terms of Article 150 of the Constitution, makes for annual Appropriation Accounts showing the expenditure against the authorised appropriations and the reasons for the variations. These accounts are also audited by the CAG and his report bringing out the excess expenditure requiring regularisation under Article 115 are considered by the PAC which recommends the regularisation subject to its observations on the laxities of budgetary expenditure control. Similarly, there can be separate Public Debt Accounts bringing out the variations between the authorised and the actual borrowings as well as the reasons therefor. The present constitutional and the legal mandate of the CAG as set out in Chapter V of Part V of the Constitution and the Act passed in 1971 would allow of the audit of such accounts also by him. The present functions of the PAC as set out in the Rules of Procedure and Conduct of Business in Lok Sabha (House of People) would also enable it to consider such accounts and the audit report thereon. A procedure can be evolved for regularisation of the excess borrowings on PAC's recommendations as in the case of excess expenditure.
Meaningful Parliamentary Control: Parliamentary discussions on the amounts of borrowings and approval before passing Public Debt Act legally authorising the executive to borrow within the specified amounts as well as the specific audit of Public Debt Accounts by the CAG and the PAC's consideration of the accounts and audit report will bring about the required degree of control without detracting from the flexibility that the executive ought to have. This will be in consonance with the spirit of the Constitution and the expectations of the constitution makers.
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Management of the Public Debt |
| Public borrowings are a part of fiscal policies of
government. In the management of the public debt, governments exercise
deliberate controls over the size of borrowings, debt-mix, foreign exchange
rate implications, interest rates, debt servicing ratios and other risk
factors which might affect the stability of the economy. SAIs should report
whether adequate systems and procedures exist for the proper exercise of
such controls for effective management of the debt. Bali Declaration of |