With the government resorting to off-Budget financing of capital expenditure over the last six years, while the allocation by the Central government for capital expenditure has either declined or remained at the same level, the total capital expenditure allocation should be “read with caution”, CARE Ratings said in a report.
As a proportion of gross budgetary support, the funds raised via external sources have increased from 20 per cent in FY14 to 69 per cent in FY19, after peaking at 79 per cent in FY18, the report said. The funds raised by the CPSEs via external resources which could be available to the government for investment spending has almost tripled in the previous six years from Rs 0.72 lakh crore in FY14 to Rs 2.1 lakh crore in FY19, growing at a combined annual growth rate of 24 per cent.
“This trend indicates that there has been a higher reliance by the government to fund capital spending via central public sector enterprises (CPSEs) rather than allocating funds in the budget under the head of capital expenditure…financing via the internal and external budgetary resources has seen a significant increase in absolute terms as well as a proportion of total gross budgetary source (GBS). Given this additional source of financing available with the government, the total capital expenditure allocation must always be read with caution,” the report said.
Although funds available with CPSEs via external sources to be incurred on capital expenditure has been marginally lower in FY19 at Rs 2.1 lakh crore as against Rs 2.2 lakh crore in FY18, the amount is significantly higher than Rs 0.72 lakh crore in FY14, it said.
The amount of Rs 2.1 lakh crore available to the government to fund capital expenditure through the external resources of CPSEs is 35 per cent of the gross market borrowings of Rs 5.4 lakh crore of the government and one-third of the fiscal deficit of Rs 6.2 lakh crore in FY19. This amount, however, is not included in either arriving at the gross market borrowings for the year or fiscal deficit, it said.
Off-budget financing is expected to continue in the upcoming Budget as well since it could provide the government additional headroom for some spending extravaganza ahead of polls. The issue of off-Budget financing by the government was flagged earlier this month by CAG also in its audit report on Compliance of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 for fiscal 2016-17.