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‘Off-Budget Borrowing’

  • Category
  • Published
    2nd Feb, 2021

In order to restrict the fiscal deficit to a respectable number, “off-budget borrowing” is the easiest resort for the government.


In order to restrict the fiscal deficit to a respectable number, “off-budget borrowing” is the easiest resort for the government.


  • What are ‘Off-Budget Borrowings’?
  • Off-budget borrowings are loans that are taken not by the Centre directly, but by another public institution which borrows on the directions of the central government.
  • Such borrowings are used to fulfil the government’s expenditure needs.
  • But since the liability of the loan is not formally on the Centre, the loan is not included in the national fiscal deficit.
  • This helps keep the country’s fiscal deficit within acceptable limits.

CAG Report, 2019

  • A Comptroller and Auditor General report of 2019 points out, this route of financing puts major sources of funds outside the control of Parliament.
  • Such off-budget financing is not part of the calculation of the fiscal indicators despite fiscal implications.


  • The Union Budget is to be presented on February 1.
  • The most sought after details in the Budget is the level of fiscal deficit, which is keenly watched by rating agencies, both inside and outside the country.
  • This number is the most important metric to understand the financial health of any government’s finances.
  • This is why most governments want to restrict their fiscal deficit to a respectable number.
  • One of the ways to do this is by resorting to “off-budget borrowings”. 

How are off-budget borrowings raised?

  • Implementing agencies: The government can ask an implementing agency to raise the required funds from the market through loans or by issuing bonds.
    • For example, food subsidy is one of the major expenditures of the Centre.
      • In the Budget presentation for 2020-21, the government paid only half the amount budgeted for the food subsidy bill to the Food Corporation of India.
      • The shortfall was met through a loan from the National Small Savings Fund. This allowed the Centre to halve its food subsidy bill from Rs 1,51,000 crore to Rs 77,892 crore in 2020-21.
    • Other PSUs: Other public sector undertakings have also borrowed for the government.
      • For instance, public sector oil marketing companies were asked to pay for subsidised gas cylinders for Pradhan Mantri Ujjwala Yojana beneficiaries in the past.
    • PSBs: Public sector banks are also used to fund off-budget expenses.
      • For example, loans from PSU banks were used to make up for the shortfall in the release of fertiliser subsidy.

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