The Finance Ministry has come under heavy criticism from the Comptroller and Auditor General of India (CAG) for its use of off-budget financing for capital expenditure needs, as well as to defer subsidy arrears.
The CAG said in a report on Fiscal Responsibility and Budget Management (FRBM) tabled in Parliament on Tuesday, that since off-budget financing, like market borrowing and ways and means advances, is outside the purview of parliamentary oversight, the centre should frame a policy on the mechanism and sources of such funding in view of its fiscal implication.
In the report, which covered fiscal 2016-17, the CAG said off-budget financing was being used to defer fertiliser arrears, food subsidy bills and outstanding dues of Food Corporation of India (FCI) through borrowings.
“The Government resorts to off-budget methods of financing to meet revenue and capital requirements. The quantum of such borrowings is huge and current policy framework lacks transparent disclosures and management strategy for comprehensively managing such borrowings,” the report said.
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“Though Government’s strategy to meet capital expenditure through off-budget financing provides flexibility in meeting requirement of capital intensive projects, such financing would be outside budgetary control. Further, mainly backed by the trust in the Government’s explicit or implicit guarantee, it would pose fiscal risk in the long term in cases the entity that raises the funds fails to meet debt servicing,” it said.
Any framework created by the government should specify the rationale and objective of off-budget financing, quantum of off-budget financing and sources of fund, among others. CAG further said the government should also consider disclosing the details of off- budget borrowings through disclosure statements in Budget as well as in accounts.
The objective of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was to provide for the responsibility of the Central Government to ensure inter-generational equity in fiscal management and long-term macro-economic stability.
Successive governments have resorted to time-tested methods of rolling over additional subsidy burden, taking back unspent amounts from ministries, converting certain expenditure entries to ways and means advance, and running down the cash reserves. In 2018-19 as well, such steps are expected as the centre looks to meet an increasingly difficult fiscal deficit target of 3.3 per cent of gross domestic product.
To illustrate off-budget financing, the CAG report gave the example of Food Corporation of India. The difference between the cost of procurement of foodgrains and cost of providing them to fair price shops is what FCI demands from the government as subsidy. When the budget allocation of a financial year is not sufficient to clear all the dues of food subsidies bill raised by FCI, the dues of such subsidies are carried over to next financial year.
“In order to cover financial requirements arising out of the subsidy arrears, FCI resorts to a number of methods in different years such as Bonds (Rs 13,000 crore), unsecured short term loans (Rs 40,000 crore), National Small Saving Funds (NSSF) Loans (Rs 70,000 crore) etc,” the CAG report said.
“It is evident that there was increase of about 350 per cent in carried over subsidy arrears in the five years preceding 2016-17 which require financing from a number of methods including very high interest cash credit facility which increases actual cost of this subsidy substantially,” it said.
The CAG said in a report on Fiscal Responsibility and Budget Management (FRBM) tabled in Parliament on Tuesday, that since off-budget financing, like market borrowing and ways and means advances, is outside the purview of parliamentary oversight, the centre should frame a policy on the mechanism and sources of such funding in view of its fiscal implication.
In the report, which covered fiscal 2016-17, the CAG said off-budget financing was being used to defer fertiliser arrears, food subsidy bills and outstanding dues of Food Corporation of India (FCI) through borrowings.
“The Government resorts to off-budget methods of financing to meet revenue and capital requirements. The quantum of such borrowings is huge and current policy framework lacks transparent disclosures and management strategy for comprehensively managing such borrowings,” the report said.
ALSO READ: Govt asking RBI for at least Rs 23,100 cr interim dividend before 31 March
“Though Government’s strategy to meet capital expenditure through off-budget financing provides flexibility in meeting requirement of capital intensive projects, such financing would be outside budgetary control. Further, mainly backed by the trust in the Government’s explicit or implicit guarantee, it would pose fiscal risk in the long term in cases the entity that raises the funds fails to meet debt servicing,” it said.
Any framework created by the government should specify the rationale and objective of off-budget financing, quantum of off-budget financing and sources of fund, among others. CAG further said the government should also consider disclosing the details of off- budget borrowings through disclosure statements in Budget as well as in accounts.
The objective of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was to provide for the responsibility of the Central Government to ensure inter-generational equity in fiscal management and long-term macro-economic stability.
Successive governments have resorted to time-tested methods of rolling over additional subsidy burden, taking back unspent amounts from ministries, converting certain expenditure entries to ways and means advance, and running down the cash reserves. In 2018-19 as well, such steps are expected as the centre looks to meet an increasingly difficult fiscal deficit target of 3.3 per cent of gross domestic product.
To illustrate off-budget financing, the CAG report gave the example of Food Corporation of India. The difference between the cost of procurement of foodgrains and cost of providing them to fair price shops is what FCI demands from the government as subsidy. When the budget allocation of a financial year is not sufficient to clear all the dues of food subsidies bill raised by FCI, the dues of such subsidies are carried over to next financial year.
“In order to cover financial requirements arising out of the subsidy arrears, FCI resorts to a number of methods in different years such as Bonds (Rs 13,000 crore), unsecured short term loans (Rs 40,000 crore), National Small Saving Funds (NSSF) Loans (Rs 70,000 crore) etc,” the CAG report said.
“It is evident that there was increase of about 350 per cent in carried over subsidy arrears in the five years preceding 2016-17 which require financing from a number of methods including very high interest cash credit facility which increases actual cost of this subsidy substantially,” it said.
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