With off-budget liabilities in,deficit targets may be missed

In what will likely extend the timeframe for achieving targets specified under the Fiscal Responsibility and Budget Management...

In what will likely extend the timeframe for achieving targets specified under the Fiscal Responsibility and Budget Management (FRBM) Act, the government today asked the 13th Finance Commission to account for the bonds issued to fund oil, food and fertiliser subsidies in the Budget. These subsidies — amounting to a whopping Rs 1,00,000 crore this fiscal — are shown as off-Budget liabilities by the government.

The Cabinet’s decision to this effect follows finance minister P Chidambaram’s admission in his Budget speech for 2008-09 that the fiscal and revenue deficits are understated to the extent of these liabilities. “There is a need to bring these into fiscal accounting,” he had said. As a first step, he had separately shown these in the Budget documents this year.

The 13th Finance Commission is scheduled to submit its report to the government on October 31, 2009. As the FRBM Act stands today, the fiscal consolidation target requires the government to pare fiscal deficit by 0.3 per cent a year and make it 3 per cent by the end 2008-09 and revenue deficit by 0.5 per cent a year to eliminate it by the current fiscal-end.

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The government, however, estimated the fiscal deficit for 2007-08 at 2.8 per cent of the GDP and projected it to drop to 2.5 per cent in the current fiscal. Rating agencies such as Fitch have said the government may miss the target given the farm debt waiver, tax cuts and higher subsidies. In April, Crisil, an S&P’s company, forecast the fiscal deficit to touch 3.9 per cent of GDP in 2008-09.

In its quarterly monetary policy review on July 29, the Reserve Bank too cautioned the government against deteriorating fiscal position due to growing off-budget liabilities, expenditure on subsidies, loan waiver and possible implementation of the Sixth Pay Commission recommendations during the year. “Early fiscal indicators point to some strains on the Centre’s fiscal position which has worsened somewhat in relation to Budget estimates,” it said.