‘Off-Budget Borrowing’
- Category
Economy
- Published
2nd Feb, 2021
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In order to restrict the fiscal deficit to a respectable number, “off-budget borrowing” is the easiest resort for the government.
Context
In order to restrict the fiscal deficit to a respectable number, “off-budget borrowing” is the easiest resort for the government.
About
- 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.
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Background
- 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.