On Monday evening, as banks pored over the details of the half year market borrowing calendar of the government and RBI, they may not have noticed a Rs 10,000 crore jugglery in the figures. That jugglery is in the statement of the revenue deficit figures by the government for the current year. The difference will also impact the deficit calculation for the next year, for which the borrowing calendar was released on Monday.
In short, the government has told Parliament that its revenue deficit for 2009-10 is Rs 3,39,766.84 crore, whereas for the rest of the world the figure is Rs 3,29,061 crore, a difference of Rs 10,705 crore. The first set of figures is contained in the annual financial statement (AFS) of the central government. The statement can be called the heart of the budget documents. The statement is a sort of accounts for the government treasury. And the treasury, known as the Consolidated Fund of India, is under the control of the Lok Sabha. So every finance minister gives the details of the spending and receipts from and into the consolidated fund in the AFS.
Every official writing those numbers, therefore, ensures that none of those figures are incorrectly printed. To make sense of those numbers, the government also prints supporting documents, including the crucial Budget at a Glance, which presents those numbers in a ready-to-understand form for you and me. This document also has sanctity as it is laid on the table of both the Houses of Parliament.
Yet, the revenue deficit of the Centre, as per the AFS, is much more than the deficit as shown in Budget at a Glance. It will be difficult to recollect when this has happened before. The government is, in effect, saying that the revised revenue deficit of 5.3% for 2009-10 is an understatement and the correct figure is more like 5.5% of GDP. This also means the revenue receipts in Budget at a Glance have been overstated or the revenue expenditure has been understated by a similar amount.
In the scheme of government accounts, the fiscal deficit is the sum total of all revenue and capital expenditure balanced against the revenue receipts and non-debt capital receipts. Usually, the government spends more than it earns. So the difference between the two is made good by government borrowings from different sources, including the bond market. Since the market borrowing made by the finance ministry matches the lower estimate of revenue deficit, it would seem the under-provision has not been accounted for. In effect, the fiscal deficit, too, has been understated.
Is there a critical piece of information missing in the accounts for the current year? The total number of ministries for which the finance ministry draws up a balance sheet is 105 and it would be a gargantuan task to trawl through them to find the missing link. It is also unnecessary. The point of debate is pretty clear. One set of government figures on the deficit does not match the other. Both have been tabled in Parliament.
However, in the budget estimates for 2010-11, this discrepancy has been ironed out. The difference between the two sets of numbers in the AFS and Budget at a Glance is just Rs 250 crore, which is obviously an accounting difference. But there are two entries in the receipts and in the expenditure budgets that provide a hint of how the same may have been reconciled. In the demand for grants for the ministry of consumer affairs, the sum provided for the estimated food subsidy is Rs 55,578 crore. But the projected expenditure for food subsidy is Rs 10,000 crore more. This will be provided for, the budget documents show, through a ways-and-means advance to the Food Corporation of India for Rs 10,000 crore.
This sort of borrowing by the government to meet a departmental expenditure has rarely happened before and certainly not in the past two decades. No department has had its projected expenditure clearly offset through the mechanism of cash borrowing. The explanatory note with the entry says the advance will be adjusted in the same fiscal, which the government can be quite relied upon to implement. As a result, despite incurring a total expenditure of Rs 66,678 crore for food subsidy, the government can get away with showing a lower bill. To that extent, the fiscal and the revenue deficit will also be lower in the next fiscal. But as the ways-and-means advance will be financed by RBI, it will add to the overall cash availability in the economy with the attendant consequence on yields.
Similarly, in the receipts budget, the finance ministry has made another startling assumption. This is the under-provision for the borrowings made by state governments. In the past two years, as the state governments have got richer due to higher tax collections and fiscal prudence, they have invested their surplus cash in 14-day treasury bills issued by the Centre. The interest on those bills is naturally provided for by the Centre. In 2008-09, that investment rose by 73% and in 2009-10 by 43% to Rs 98,663 crore. But for 2010-11, the finance ministry has assumed there will be zero growth in the cash surplus of the states. The corresponding interest payment provision is also lower and so on. The borrowing calendar offered to banks to make up the shortfall naturally looks healthier than it actually is.
subhomoy.bhattacharjee@expressindia.com