In the face of an 11.3% shortfall in tax revenue against the revised Budget estimate (RE), the Centre cut budgetary expenditure by `1.45 lakh crore or about 6% and reported that it stuck to the FY19 fiscal deficit target (RE) of 3.4% of the gross domestic product (GDP).
However, if the spending of `1.4 lakh crore undertaken out of extra-budgetary resources are included — strictly speaking, it must be — the deficit would have been higher at 4.1% of the GDP.
In other words, the government did spend almost as much as the RE of `24.5 lakh crore in FY19.
What this indicates is that the glide path to bring down the deficit to 3% — which itself was repeatedly revised, the latest deadline being 2020-2021 — is barely being adhered to.
The Centre’s EBRs actually include several other loans also — like the borrowings by NHAI and ailing firms like MTNL — but the above estimate includes only those EBRs which are to be fully serviced out of the Budget.
As the chart shows, loans taken by FCI (mostly from NSSF) to meet its food subsidy obligations form the largest chunk of EBRs that should have been part of the budget, while HUDCO and NHB (which fund affordable housing programmes), Nabard (irrigation and rural housing), REC (rural electrification) are the other state-run agencies through which such off-budget borrowings are being routed.
As most of these public-sector debtors have no facility to pay back the loans from their own resources — neither are they supposed to, as the monies are meant for government schemes — these are clearly liabilities on the exchequer.
Expressing concern over the Centre’s increasing reliance on off-budget borrowings, the Comptroller and Auditor General of India (CAG) said last year that off-budget capex and revenue expenditures understate fiscal indicators. “Government may consider putting in place a policy framework for off-budget financing, which, amongst others, should include disclosure to Parliament,” the national auditor had said.
Independent agencies such as JPMorgan and Credit Suisse have also raised alarm over the under-statement of the Centre’s fiscal deficit in reports released after the presentation of the Interim Budget on February 1.
According to the CGA report released on Friday, the Centre’s FY19 fiscal deficit was Rs 6.45 lakh crore.
Spending via EBRs — rather than through Budget — will allow the Centre to reduce the immediate impact on the fisc, as the repayments are calibrated over many years. These, however, add to the overall public debt.
However, these would still crowd out the private sector from the market as much as direct sovereign borrowings would do and put pressure on bond yields.
The Centre’s elevated EBR levels coincide with the state governments raising their exposure to the market, desisting from the practice of taking the costly National Small Savings Fund (NSSF) loans.
The Centre’s fund mobilisation via EBRs are being used to finance food subsidy arrears, Pradhan Manti Awas Yojana, electrification programme, higher education infrastructure, Swachh Bharat Mission and irrigation among a host of other such schemes.