Ahead of general elections, more off-budget deficit financing likelyhttps://indianexpress.com/article/business/economy/ahead-of-general-elections-more-off-budget-deficit-financing-likely-5540297/

Ahead of general elections, more off-budget deficit financing likely

Disinvestment target to be met, but mostly through buybacks of shares by public sector units

CAD worsens to 2.9% in September quarter on higher trade deficit
Service tax collections were estimated to be nil in the Union Budget for 2018-19 but the government has already garnered Rs 5,630 crore in April-November.

Besides the reliance on borrowings through off-budget channels to finance capital and revenue spending, a practice that is employed by successive governments to mask the true extent of fiscal and revenue deficits and that has come under fire from the national auditor, the NDA government has again set the stage for deficit smokescreen this fiscal which gives it additional headroom for some spending extravaganza ahead of the polls.

Assumptions on direct tax receipts and indirect taxes such as those for service tax and GST compensation cess are going to aid the government in meeting the 2018-19 fiscal deficit target of 3.3 per cent of the GDP. Service tax collections were estimated to be nil in the Union Budget for 2018-19 but the government has already garnered Rs 5,630 crore in April-November.

The Central government is also going to get Rs 25,000-30,000 crore from unutilised GST compensation cess as the compensation payout to states for the fiscal is likely to be Rs 60,000 crore as against the Budget estimate of Rs 90,000 crore. The government has already collected Rs 71,917 crore as GST compensation cess during April-December.

“There has been considerable advance settlement for states for IGST (integrated GST). Therefore, their compensation requirements would be lower than estimated and the unutilised compensation cess revenue will remain with the Centre at the end of the fiscal,” a government source said.


In August, the government amended the GST compensation cess law that allowed Centre to dip into the surplus in the GST Compensation Fund at any time during a financial year. The law earlier allowed division of the surplus only after a five-year transition period till June 2022, during which states are constitutionally guaranteed a GST revenue growth (over the base year, 2015-16) of 14 per cent per year. A higher-than-budgeted nominal GDP growth of 12.2 per cent estimated for FY’19 against the budget estimate of 11.5 per cent will also help the government produce better fiscal deficit and revenue deficit numbers in a revenue-scarce year.

Last year too, the government had set aside the CSO estimate of 9.5 per cent nominal GDP growth for FY18 and assumed 10.5 per cent nominal GDP growth.

Disinvestment target that it set for itself in Budget 2018-19 will be met, but mostly through buybacks of shares by PSUs, which effectively means the state-owned firms would pay the government for the shares it holds, reducing the number of their shares in circulation. As on December 28, the government has raised Rs 34,142.35 crore as disinvestment proceeds against Budget estimate of Rs 80,000 crore. Centre has raised Rs 1,592 crore through buybacks so far, which will go up as ONGC has already approved Rs 4,022 crore worth of buyback.

Allocation for schemes like Ayushman Bharat have been lower than expected, with the FY19 budget estimate at Rs 2,000 crore compared with likely Budget of Rs 10,000-12,000 crore for the scheme.

The tendency to involve a number of smokescreens in the Budget comes at a time when states are playing an increasingly important role in India’s investment spending, accounting for 65 per cent of overall government spending, with larger shares in social sectors and capital formation. According to Crisil data, the Centre’s capital spending through its Budget is coming down and public investments in the economy are increasingly becoming dependent on state governments and the internal and extra budgetary resources of public-sector entities.

In its audit report on Compliance of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 for fiscal 2016-17, CAG has said that in terms of revenue spending, off-budget financing was used for covering the deferment of fertiliser bills through special banking arrangements; food subsidy bills of the Food Corporation of India through borrowings and for implementation of irrigation scheme (Accelerated Irrigation Benefits Programme) through borrowings by the National Bank for Agriculture and Rural Development (Nabard) under the Long Term Irrigation Fund.

CAG said the huge off-budget financing lacks transparent disclosures and could pose fiscal risk in the long term in case the entity that raises the funds fails to meet debt servicing. In terms of capital expenditure, off-budget financing of railway projects through borrowings of the IRFC (Indian Railway Finance Corp) and financing of power projects through the PFC (Power Finance Corp) are outside the budgetary control. Such off-budget financing are not part of calculation of the fiscal indicators despite fiscal implications.