The Shift from Trade to Public Spending as the New Engine of Growth--and its Bad Timing
Insights on how India can build a more transparent and resilient fiscal framework for the years ahead
In this episode, Puja Mehra speaks with economist Dr. Anoop Singh, author of Managing Public Finances in a New Global Era: India’s Experiences and Challenges, about how India can strengthen fiscal discipline in an age of slowing trade and rising public debt. Singh explains why the world is shifting from trade-driven to fiscal-driven growth and how India must confront the challenges of opaque accounting, off-budget borrowing, and mounting subsidies. He highlights the urgent need for common definitions across states, transparent reporting, and institutional reform to ensure that every rupee spent is visible and accountable. Drawing on lessons from global peers, Singh argues that sustainable growth depends on seeing and managing what governments spend. “You cannot manage what you can’t see,” he warns. Tune in for insights on how India can build a more transparent and resilient fiscal framework for the years ahead.
PDF - The State of State Finances in India: Bridging the Data Gaps: https://www.thecore.in/h-library/is-3aanoops.pdf
(00:00) Introduction
(00:43) From Trade-Driven to Fiscal-Driven Growth
(04:06) The Rise of Public Debt in Advanced Economies
(05:41) India’s Subsidy Framework at a Crossroads
(09:52) The Problem of Off-Budget Borrowing
(11:39) Why India Lacks a Clear Definition of Capital Expenditure
(14:23) Data Gaps and the Hidden Cost of Subsidies
(16:22) Interest Payments Now Exceed Key Development Spending
(18:13) How India’s Fiscal Reporting Lags Behind G20 Peers
(20:31) Who Can Lead Reform—RBI, Finance Ministry, or CAG?
(23:50) The Future of Public Investment and Fiscal Monitoring
(24:25) “You Cannot Manage What You Can’t See” — Final Reflections
NOTE: This transcript is done by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
—
TRANSCRIPT
Puja Mehra: Dr. Anoop Singh, thank you so much for coming to the show. I've just started reading your new book, Managing Public Finances in a New Global Era, India's Experiences and Challenges. And I have to say, it's a very timely book.
It's a very lucidly written book, even for those who are not economists and have not studied economics. Congratulations for the book.
Dr. Anoop Singh: Thank you so much and thank you for doing this.
Puja Mehra: You write that more than global trade, countries will now rely on fiscal spending for reaching development goals and improving living standards. For lay listeners who don't know economics, could you please explain the shift and the strategic role of India's public finances in this new global economic era that we are entering?
Dr. Anoop Singh: Yes, of course. Well, actually, over the last, I would say, 8 to 10 years, trade-driven growth has probably been faltering. In that context, Trump's tariffs bring to the fore where we are, and that symbolises that countries probably cannot rely on trade as an engine for growth.
So it's a big change, but I would say it's not just with the tariffs. The whole process began 10 years ago. Now, the issue is that countries have already announced that public spending, public policy, is now going to be the main engine of growth.
And India has been saying there for some time, the finance minister has rightly been emphasising the importance of capital expenditure for growth. So the issue basically is, let's start at one point. The world is turning to the use of fiscal policy and government spending as an engine for growth at what I call an inopportune moment.
Why is it inopportune? Because global debt has never been as high as it now is. Now, in the past, when we spoke about global debt, public debt, we talked of emerging markets.
We talked about Sri Lanka. We talk of Argentina as where the problem is. But that is not the case now.
The problem of high global debt and high public debt is equally or even more with the advanced countries, the United States, France, and others. So the issue is, if we are in a world where we want to use public policy, but we are also in a world where public debt is very high, how do we use public policy? It's therefore even more important what we spend on.
And it's not so much whether you're spending on good items or bad items. Governments have to decide what they want to spend on. What is important is to know how much you're spending on what.
And one reason why global debt is so high now is because countries across the globe, including advanced countries, have used unusual and undisclosed ways to get their debt high. Even countries like Germany, which has been a fiscal hawk for the last 40 years, found a way to evade its debt. Certainly in other advanced countries too.
So the issue is, if you cannot see what you're spending on, if you cannot see your public debt, you can't manage it. So the issue in the book is, you have to see what your debt is, you have to see what you're spending on. If you can't see exactly the amount, you can't manage it.
And that involves the crux of the problem.
Puja Mehra: So your example of Germany in the book, I saw that they found a way to get around their constitutional break. But India is also handing out more and more subsidies to industry, freebies to voters, especially farmers and women. Every rupee spent on these heads means that it's not spent on something else, which may be more important, such as defence, which in the current global order may have to go in the Indian priority list as well, just as it is going up for Europe.
If Europe has to contend with new realities, post-Trump and the Russia-Ukraine war, India has to keep in mind territorial tensions with China, which is more assertive than ever. And I know that your book is not so much about what head governments must spend on, that is ultimately a political decision. But all this also means, as you write in the book, that the subsidy framework itself is at a critical juncture and accountability is something which is important.
And accountability is something with which economists such as yourself can help. Because we do not know because of the data gaps about how these decisions are taken and how to distinguish between justifiable welfare measures and just politically motivated giveaways. We've seen that often subsidies only benefit recipients and not society as a whole, as you have written.
If you could explain with examples of subsidies and schemes, to say where you see a case for re-evaluation. And again, I'm not asking you to distinguish good from bad, but simply to make the point about how accountability is important.
Dr. Anoop Singh: On subsidies, let me start out by making one more point. And that is, as countries have moved away from trade-driven growth, partly because of industrial policy and technology, advanced countries have taken to subsidies for industrial policy and technology. And that has made the whole situation worse.
Now coming to India, India has an incredibly immaculate, incredibly well-disciplined institution called the CEG, the Controller General of Accounts. The CEG has just brought out a report summarising the situation with states over the past 10 years. Much of the work we've done in my book is based on material the CEG has amassed and publicised over the years.
And I want to make that clear. The CEG is the source of the information I have used. The second is, I want to make this point, a few years ago, the Ministry of Finance in Delhi, Reiki, made the important decision that this issue of inconspiracy has to end.
And at that stage, they took up the issue of many states borrowing and spending outside the budget, off-budget spending. And they went a long way in trying to tell states, you must tell us how much you are borrowing off-budget. We will then add that to your published data on your state's debt.
And that will become the criterion for future borrowing by the state. So these were incredible things India has done. Now the issue is, it needs to be continued.
It needs to be continued because across the states, you asked me about subsidies. The issue is, what Bajaj calls a subsidy, or what Kerala calls a subsidy, or what Tamil Nadu calls a subsidy, is a different animal. We don't have consistent definitions for aggregates across states.
We also have what I call data gaps. Now I will show you a small table that tells you what a data gap is. Data gaps are instruments that states, and frankly the Centre too, have used to not disclose spending in conventional categories.
So if there is a subsidy being given for some item, it may not show up as a subsidy to that item. It may show up as a transfer to a PSU, and that PSU is spending on something we don't know, and later on the government comes in and finances the PCO debt. So you won't find out until much later that that particular spending was a subsidy.
So finally what we did was, we tried to see from all the information available, how much states are spending on subsidies, number one, and number two, how much are they spending on capital expenditure, because that's important. The problem is just as there is no definition for a subsidy across states, India does not have a definition for what is capital expenditure. Now capital expenditure is supposed to be good, provided it's spending on the real acquisition.
If you are spending by giving a loan to a PSU, which may or may not use that for capital, that is not capital expenditure. Now what we found is, if you try your best to estimate if states are spending more on actual subsidies than they report, the answer is yes, many states are. If you come to capital expenditure, it's the opposite.
Are states at the centre saying they are spending the right amount of capital expenditure? And the answer is no. In many states, and frankly at the centre, they are spending less on what is conventionally called capital expenditure.
And you may argue, someone told me, we're talking about 1-2% of GDP, 3% of GDP, that's not so big. And I said, 1-3% difference is huge. No country can choose to spend more than say 3% of GDP quickly in a couple of years.
So if there is up to 3% of GDP being spent differently, it's a big number. So that's why we've done this, to show what we are actually spending on. We are not estimating if it's good to spend on freebies or not.
What we're saying is, we want to know, we want to see what you're spending. If we cannot see what you're spending, we cannot manage it, the state can't manage it, the central government can't manage it, and the public can't manage it. So we have to see in order to manage it.
Puja Mehra: Yeah, no, I agree, because if you have to see what you're borrowing and what you're spending on, because you're after all borrowing from the future generations, and every improvement you're making to your present today, you're taking away something from the future generations, that's what debt is all about. But you said that you've tried to estimate what the actuals are as different from what is being disclosed, one, and two, how it is disclosed differently, or reported differently, or sometimes not even reported across states. So if you could give some of those numbers to help us understand, you know, what is the dimension of this whole thing?
Dr. Anoop Singh: Well, it's not every state, but many states. Where subsidies are concerned, there are often different government entities that are spending on certain subsidies, and we don't find out until later, until that entity needs to have its borrowing repaid. Where capital is concerned, it's a very simple point, India does not have a definition of capital expenditure.
Capital expenditure has to be a real asset, and when you spend on a real asset, any project will take five years to complete. So there's an accounting aspect of it too. When you're spending on capital expenditure, you have to tell the public how you will spend on that project over the next five years, and most importantly, how you will finance it.
If you give it only for one year, that doesn't help from the accounting point of view, but equally, it must be on the acquisition of a real asset. If it is the acquisition of a financial asset, it is not capital expenditure. So when we look at that, you find that India's spending on capital expenditure at many states and the centre is smaller and less than we think it is.
Now, nothing I have said so far has been reported on by the CEG. The issue is, why is it that when the CEG makes these points, makes these recommendations, why are they not implemented? Now, what the problem is, it is an institution that does audits.
Audits are done one or two years after the event, so it's too late. But even then, why is it that what the CEG recommends is not being implemented and I want to make it clear, it's not only in this country. In many countries, these rules, like fiscal rules, are not followed.
Although many countries have fiscal rules, they found a way to avoid them and that's the issue that we're talking about. What we cannot see, we cannot manage.
Puja Mehra: I get that absolutely. Let me read out what you write about food subsidies, for instance. You say that in the financial year 2023, food subsidies were reported cumulatively for about 12,000 crore in 18 states.
But when you do the calculations using this official data, you find that actually it is higher by at least 25,000 crore. That's a huge degree of understatement.
Dr. Anoop Singh: We're talking about 1-3% of GDP in many states. Not all, but quite a few states. Let me make one more point, if I may.
This issue of data gaps and misreporting is a problem, frankly, in almost all states. You may ask me a question, why do I use the word almost all states? Why do I not say all states?
The reason why I say that is important. This is quite remarkable. In India, until recently, I don't mean until right now, but at least a year ago, there's just one state that has followed consistent rules throughout this period.
Only one state. Why I'm making that point is it can be done. If a state wants to do it, it can do it.
This is not an issue of lack of technical assistance. This is not an issue of lack of capacity. This is not an issue if you don't have people.
This is not an issue if you don't know how to do it. This is an issue of intention. And we need to remember that.
Puja Mehra: Is this State Orissa?
Dr. Anoop Singh: I'm not going to comment on that now, but you are normally right in what you say, from what I know. So you may be right, but there's just one state. And I said, until recently, I didn't say until this afternoon, I said, at least until one year.
Puja Mehra: Right. Let me bring you to the thing of that, because you've done so much data work, at least I and I do follow some of this data. At least I was a bit taken aback by one of the figures in your book, which is that the interest payments by the general government, which is government in the centre, states and local, exceeds 5% of GDP, which is higher on the spending on key development priorities.
Is this sustainable? Or are we stealing from future generations?
Dr. Anoop Singh: You know, the issue of interest spending is becoming very important globally. As I said, across the world, global debt has gone up, which means interest schemes have gone up. They've reached levels that in some countries may be manageable.
For example, in Tokyo, in Japan, so far, the Japanese market buys Japanese bonds. So regardless of what the debt is, at least until now, they buy their bonds. In the US by and large, the treasury market is sound and you can buy it.
The issues in other countries, I would say France is facing problems now. So when interest rates reach this level, it's not only an issue of can you afford it. The issue is you have to continue to issue more debt.
And to issue more debt, you have to perhaps give higher interest in order to get institutions to buy the debt. So the issue on both sides is taking up resources that could be used for human capital. It also means you need to do it or you can't finance your spending.
It's an issue from both points of view. And yes, India's interest rates spending is reaching 5% of GDP, which is high by any standard.
Puja Mehra: And since you say that fiscal reporting in India lags behind G20 peers, you have, in the conversation we've had so far, also said that there are problems of definition, there are problems of disclosures. But in terms of this international comparison, could you give some examples to illustrate the point? It may help change intentions.
Dr. Anoop Singh: India has been publicly a leader of having consistent reporting of fiscal data. India has made that announcement a number of times. But India was a leader of the G20 a few years ago.
It made a central plank of its presidency the importance of data for development, including fiscal data. A few years afterwards, in Bali, G20, India made the same point, the importance of data transparency. So India has officially been completely committed to what I've been talking about.
One more point. At least 10 years ago, India had made a commitment that it would report data on the general government. Now, what is the general government?
It's important in any federation, where there are different levels of government, you have to add them up, because very often they have issues between them, they will need to be netted out. So in India, we understand that local bodies are not at a stage now that we can report our data consistently. But for the central and the states, let me give you an example.
A country like Brazil, I think also South Africa, they issue quarterly data for the general government on a quarterly basis, within one quarter of that portal. India has committed to this, but we're not there yet. The issue of definition is something else.
It's easier to use international definitions and conventions, so it is comparable across countries. However, if any country wants to have its own definition, and not an international definition, in my view, it's okay. As long as you are completely clear what your definition is, and if it's applied to every player in your country, that's fine.
The need for consistency is almost more important than what the definition is, in my view.
Puja Mehra: And what is the institution that can drive this, for all the states to at least agree to common definitions, for them to agree to calendars by which they will follow for releasing and publishing this data? Is it the RBI, you think, because state governments have to borrow and they go to the RBI for that? Or is it the union finance ministry, where there may be some tensions, federal relations may come into play there?
What you are recommending needs to be done. I think your point is very clear that it definitely needs to be done. I don't think anybody's going to have a quarrel with that.
But how can it be done, is the question.
Dr. Anoop Singh: This is the most important point. I would not put the RBI as a centre of that, because RBI is not in a constant discussion with states on the nature of their porting. So, I would say in India, the policy makers will know how to deal with this.
It's also a political achievement. If you find a way to deal with the centre and the state and bring them together. Now, if you ask me, is there an institution that can do this?
Frankly, the government can set up an institution. The government can, if it wants to, for example, I'm not recommending it, have something like the GSE Council for the data repository of central states. And they could ask that committee to come up with documentation, which is needed before you implement it.
But if you're looking at a single institution, as far as I know, and I may not be completely correct, I think the CAG has that mandate right now. I think under Article 150 of the Constitution, the CAG has the legal right, I believe, to develop a reporting framework for the states and have that issued by the President of India. There is a constitutional provision that allows the CAG to do this through the President of India.
So, there are ways it can be done.
Puja Mehra: But then why is it not getting done? Is it a question of political clout, which probably the Finance Commission may have more than the CAG?
Dr. Anoop Singh: The Finance Commission is a very important institution, as I know. The Finance Commission so far comes and goes. It's not permanent.
We need it done in a more permanent way. We need a procedure. We need an institution that becomes a repository and an institution that deals with states to ensure this is being done uniformly.
If you look at some of the recommendations made by the 15th Finance Commission, there are some recommendations there. My point is, it can be done. My number two point, the CAG has a constitutional right to go down this route.
Number three, the government can certainly do it, but it must be done in collaboration with the states. That's most important.
Puja Mehra: Yeah, that's the only way it will work clearly. But any summing up points you want to make?
Dr. Anoop Singh: I would say that in the coming years, where spending will be very important for growth in many countries, we know in India and other emerging markets, investment has been either faltering or declining. FDI has been declining. Therefore, government investment is going to be more important.
It has to be the case that that investment is carefully monitored, reported, audited, and followed. That is most important. That's my final point.
Puja Mehra: Otherwise, you're flying blind.
Dr. Anoop Singh: You cannot manage what you can't see.
Puja Mehra: Right. Thank you. Thank you so much.
Dr. Anoop Singh: Thank you, Puja. I can see you've seen the book by itself and I appreciate that. You're raising issues that we need to discuss.
I'm so glad you brought up all these issues. Thank you for that.
Puja Mehra: Thank you so much for writing this book.
