India, Oct. 27 -- 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 push...