Expressing concern over the Centre’s increasing reliance on off-Budget financing, the Comptroller and Auditor General of India (CAG) on Tuesday said off-budget capex and revenue expenditures understate fiscal indicators.
In the FRBM (Fiscal Responsibility and Budget Management) Act Compliance Report for FY17 tabled in Parliament, the CAG pulled up the Centre for underestimating of the total liability of the Centre by five percentage points and revenue deficit by Rs 50,999 crore.
“Government may consider putting in place a policy framework for off-Budget financing, which, amongst others, should include disclosure to Parliament,” the national auditor said.
In terms of revenue spending, off-Budget financing was used for covering deferring fertiliser arrears/bills, food subsidy bills/arrears of Food Corporation of India (FCI) and for implementation of irrigation scheme. In terms of capital expenditure, off-budget financing of railway projects through borrowings of the Indian Railway Finance Corporation (IRFC) and financing of power projects through Power Finance Corporation (PFC) were also outside the budgetary control.
The Centre reported actual revenue deficit and fiscal deficit achievement at 2.1 per cent and 3.5 per cent, respectively, in FY17 as against the FRBM targets of 2.1 per cent and 3.3 per cent, respectively.
The achievements are questionable though. The accumulated carryover liabilities on account of food subsidies had increased from Rs 23,427 crore in FY12 to Rs 81,303 in FY17, the CAG report said. To cover financial requirements, FCI resorted to borrowings via bonds, unsecured short term loans and National Small Saving Funds (NSSF) loans. It was recently reported that FCI has borrowed Rs 1.21 lakh crore from NSSF till Mach 31, 2018, as against subsidy arrears of Rs 1.35 lakh crore. Due to lack of funds, the Centre has again arranged another Rs 27,000 crore for FCI from NSSF to repay principal installments in FY19 for the earlier loans, creating a debt trap for the government.
Similarly, the government has arranged off-Budget financing of fertiliser subsidy arrears of Rs 39,057 crore in FY17, while Rs 9,086 crore was arranged via NABARD for implementation of irrigation schemes.
Such arrangements mean normal government expenditure was being substituted with loans in the accounts of PSUs instead of cash on fears of fiscal slippage. In FY19, the Centre has lined up plans to raise a massive Rs 1.7 lakh crore extra-budgetary resources (EBR) via FCI, NABARD, REC, PFC, NHB, HUDCO and HEFA, up 110 per cent from FY18. These loans will have to be serviced out of the Budget later.
On total liability of the Centre, the CAG noted that taking into account the understatement of Public Account liability of Rs 7,63,280 crore, total liability at the end of the financial year 2016-17 would be Rs 76,69,545 crore which is 50.5 per cent of GDP rather than 45.5 per cent. Similarly due to misclassification of expenditure, short/non-transfer of levy/cess to earmarked funds in the Public Account from the Consolidated Fund of India resulted in understatement of revenue expenditure at least by Rs 50,999 crore and hence revenue deficit was understated by the same amount, it added.
The CAG also noted that huge sums borrowed by PSUs — Rs 1.02 lakh crore by IRFC for rail projects and Rs 2 lakh crore by PFC for power projects — are off-Budget in nature as these borrowings do not find mention in the Finance Accounts nor are included as part of guarantees given by the government. “This not only reflects lack of disclosure; it also puts major sources of funding of government’s crucial infrastructure projects beyond the control of Parliament,” it noted. —FE