Budget 2019 India: Finance secy says a big portion of PSB recap is meant to spur lending
Union Budget 2019 India: The government would progressively trim its extra-budgetary resource (EBR) mop-ups, finance secretary Subhash Chandra Garg told FE, seeking to assuage concerns over the Centre’s increasing reliance on such loans in recent years to fund expenditure that effectively masked its actual fiscal deficit.
“We have made a complete and transparent disclosure about extra-budgetary borrowing in the Budget. So, nobody needs to speculate on it. We have also taken a view that EBRs will be reduced over a period of time. This year’s EBR plan is lower than last year’s. So, I don’t think there should be any more concern about the EBR programmes,” Garg said in an interview on Saturday.
Even excluding a big chunk of such borrowings for railways capex, the government’s extra-budgetary resources rose from Rs 2.73 lakh crore in 2016-17 to as much as Rs 5.27 lakh crore in 2018-19. In the latest Budget, though, the government has pegged it at Rs 4.44 lakh crore.
Asked if the higher-than-expected Rs 70,000-crore capital for infusion into public-sector banks (PSBs) this fiscal meant the NPA-hit lenders were still in the woods, Garg said a big chunk of it was actually growth capital, which would help spur lending; the rest would aid stressed lenders in meeting their regulatory requirements.
As for capital for state-run insurance companies (the Budget made no allocation despite an earlier demand for Rs 4,000 crore made by the department of financial services), Garg said their requirement was still being worked out and the government would pitch in in case of a pressing need to address any temporary blip in their solvency ratio.
The finance secretary also sought to underplay an apparent disconnect between the latest Economic Survey (which prescribes against creating “dwarfs” that don’t create massive jobs) and the Budget (which focussed on incentives to MSMEs).
“The ultimate strategy is to extend the benefit of lower corporate tax to all, and the government is moving gradually,” he said. The Budget allowed all companies having annual turnover of up to Rs 400 crore, instead of Rs 250 crore, the benefit of lower tax rate of 25%. This, Garg suggested, would offer relief to companies that were also larger than the SMEs.
As for EBRs, as FE had earlier reported, if the spending of Rs 1.4 lakh crore undertaken out of extra-budgetary resources were included, the fiscal deficit would have been higher at 4.1% instead of the reported 3.4%.
Pressed between the compelling need to accelerate growth through public capex in the face of a shortfall in tax revenue and sticking to a fiscal glide path, the government had increasingly turned to extra-budgetary resources. This typically involves getting public-sector enterprises or other such entities to borrow, albeit with sovereign guarantee, to finance spending what should ideally have been funded from the Budget. Any such loan allows the Centre to reduce the immediate impact on the fisc, as the repayments are calibrated over many years, although these add to the overall stock of public debt.
The CAG said last year that off-budget capex and revenue expenditures understate fiscal deficit. The Centre’s fund mobilisations 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.
Lans taken by FCI (mostly from NSSF) to meet its food subsidy obligations formed the largest chunk of EBRs in FY19.
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.