Is it a Fiscal Crisis only?
by E. Bijoykumar Singh

Gone are the days when the salaried class used to consider themselves privileged. The experience of 80 thousand odd government employees in the last few months has been nightmarish. Even in normal circumstances they were hard pressed to keep up with the Joneses irrespective of known sources of income.

It is well known that salary alone has never been the sustenance of this class, which wields enormous power to dispense with government largesse. For the enterprising and unscrupulous section, government service provides unlimited scope. The leakage in every section has made a mockery of government expenditure. As a result we stand in very poor light when the question of accountability is raised. The overwhelming presence of the government in the economy is bound to make anyone equate fiscal crisis with economic crisis.

Fiscal crisis is too obvious. Can we say that it has snowballed into an economic crisis? The symptoms of an economic crisis - rampant inflation, massive unemployment and the slow down in the growth of the economy is not too obvious. It is yet another show of resilience of our society.

The disruption in expenditure flows due to irregular salary must have created a vacuum in the beginning. Shopkeepers must have noted the slow down in the velocity of transactions. The salaried class also took time to get adjusted to the emerging situation. During this period everything moved due to momentum of earlier motion. As the salient features of the new dispensation became properly delineated, rational economic agents swung into action. 

Producers have to maximize profits. Consumers have to maximize satisfaction. What have changed are the operational constraints. Uncertainly enters as a major player. It is no longer mere revenue and income. Expected revenue, expected income and almost everything are the expected value. How such expectations are formed is equally important. The point is - the move is towards another optional equilibrium. Had it not been so, there would have been chaos. 

The salaried class have dissaved and borrowed to make the adjustment more convenient. If the expenditures of the consumers are associated with some notion of lifetime income, little has changed. The glut in fancy goods reflects a social correction of consumption pattern. As it is, the demand for household consumer durables is strongly backed by institutional finance. The local conditions have been ignored by national cheap credit policy. It has been a boon to majority of the salaried class.

An economic crisis would have been manifested in the failure of the market during the recent festive season. The segment of the market dealing with the non-traditional fancy items reportedly floundered. The local TV network interviewed shopkeepers who complained of drastic fall in sales. However there was no report of failure in the fish market. Even though there was no government-sponsored fish fair this time, the fish-sellers did not suffer. There was enough demand. Traditional woolen garments sold well.


The festive mood was there. Nothing seemed missing in the traditional market. In rural areas also, it was obviously not the worst time. It was the harvest time, usually the most liquid period in rural areas. The dismal law and order condition did not matter. It is not to deny the disabling impact of the fiscal crisis on the economy. One of the biggest casualties has been the thrift institutions locally known as Marups. 

Most of the consumption of the salaried class is financed through such institutions, which have effectively mobilized the household savings. It was simply based on mutual trust. Such trust became unsustainable when salary became irregular. However the institutions appear to have internalized the changes successfully. The expected rampant collapse of such institutions has not materialized. Every section vulnerable to these developments has managed to come up with internal resources to tide over the crisis.

This is a tribute to our plural society. We have taken everything in our stride. We have always risen above every crisis and it will be no different this time. However the current crisis can be more quickly diffused if every section of the society agrees to play its role constructively. It is still doubtful if the absence of numerous ministers has led to any substantial reduction in expenditure. If numerous bureaucrats simply take over, little will change. 

To make its presence felt the government should spend more. The public in its part should help the government in its resource mobilization exercises. The fund released by optimum expenditure control has the same effect as additional resource mobilization. One rupee saved is as good as one additional rupee mobilized. Various inefficiencies of the government machinery should no longer be excuses for not paying for government services. 

Nothing is free in the society. If you get it for free, someone has to pay for it. Huge subsidies and high tax rates are not independent. It is not true that there is no way the poor can repay the government. Repayment occurs when the poor sees to it that what the government spends on him achieves its targets. The money is not diverted to some other activities. On its part the government should respect the ability of local institutions and individuals. When there is ample mutual respect and goodwill among the government and the public, no crisis will ever be a crisis. 
Soon we shall have the chance to elect our representatives. Fifty years experience of electoral politics should help us in choosing the right persons. It is true that people resort to lots of camouflaging activities during election time and the people with the proverbial short memory are also highly gullible. However any dedicated and committed group can always expose them easily in the right moment. A little investment in this direction will yield high returns to our society. 
If we have the right leadership with commitment and vision, we need not be afraid of anything. Fiscal crisis also will be another history.

(The writer is an associate professor in the Department of economics, Manipur University.)

(Courtesy: The Imphal Free Press)

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