Unmasking the Fiscal Deficit

The fiscal deficit numbers mentioned in the Union Budget for 2019–20 on 5 July 2019 are doubtful, given that the total liabilities of the government are understated as the off-budget finance items are excluded from the fiscal deficit calculations. The government resorts to off-budget financing to meet its revenue and capital requirements. Off-budget financing is a tool being used to defer expenditure to subsequent years, and the modality of repayment of borrowing is not spelt out. They are not accounted for in the current budget because they are future liabilities and not current liabilities. They are, however, part of the overall debt of the government. Successive governments have used this route to defer some of their liabilities and exclude them from the fiscal deficit calculations. Such off-budget financing creates future liability and increases the subsidy cost due to interest payments. Of late, the central government has increased off-budget borrowings to fund capital and revenue expenditure such as food and fertiliser subsidy arrears. For example, food and fertiliser subsidy arrears had accumulated to₹ 81,303 crore and₹ 39,000 crore respectively by 2016–17.

It is worthwhile to mention that the Comptroller and Auditor General’s (CAG) report on Compliance of the Fiscal Responsibility and Budget Management Act, 2003 for 2016–17 mentioned that the off-budget financing was being used to defer fertiliser arrears, food subsidy bills, and outstanding dues of the Food Corporation of India (FCI) through borrowings. In terms of revenue spending, off-budget financing was used for deferring the fertiliser bills through special banking arrangements; food subsidy bills of the FCI was being deferred through bonds, unsecured short-term loans, the National Small Savings Fund (NSSF) loans, and borrowings by the National Bank for Agriculture and Rural Development (NABARD) under the Long Term Irrigation Fund for implementation of irrigation schemes (Accelerated Irrigation Benefits Programme). In terms of capital expenditure, off-budget financing is used to fund railway projects through borrowings from the Indian Railway Finance Corporation (IRFC) and power projects through borrowings from the Power Finance Corporation (PFC).