Every February, the most scrutinised number in Indian public finance is the fiscal deficit. It captures the gap between cash coming in and cash going out, but says far less about what governments own, owe, and what today’s decisions will cost tomorrow. Government accounting in India, at both the Union and state levels, remains largely cash-based. Transactions are recorded when cash moves rather than when the underlying obligation arises. That suited a State focused on controlling disbursement, but not so much one whose biggest fiscal risks sit outside cash flow: assets it must maintain, debt it has guaranteed, and pensions it has promised.

Cash accounting has two blind spots.

The first is obligations. Costs can be pushed into the future. Oil bonds are the clearest example. Between 2005 and 2009, the government issued securities worth roughly ₹1.4 lakh crore to oil marketing companies in place of cash subsidies for fuel sold below cost. The cost was incurred then, but because no cash moved, it was treated as fiscal-deficit neutral, despite incurring a liability. Only interest surfaced as expenditure; redemption was treated as debt repayment. Accrual accounting would instead have booked the expense when the government became liable and shown the decline in net worth. An obligation should........

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