Why govt borrows off-budget, and how

To control the fiscal deficit on record, the government uses off-budget borrowing techniques.
- Fiscal Deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing. In other words, it is the level of borrowings by the Union government.
- Fiscal Deficit is one of the indicators of the financial health of the government and is keenly watched by insiders and outsiders of the economy. Hence it is kept to an optimal number.
Let us understand what off-budget borrowings are.

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.
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.

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 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.

Comptroller and Auditor General (CAG) report of 2019 points out, this route of financing puts major sources of funds outside the control of Parliament.
The various sources of off-budget borrowing makes the true debt difficult to calculate. For instance, it was widely reported that in July 2019, just three days after the presentation of the Budget, the CAG pegged the actual fiscal deficit for 2017-18 at 5.85% of GDP instead of the government version of 3.46%.
The flaws in budgeting of fiscal deficit should be recognised timely so that we can stop the illogical management and representation of fiscal deficit.

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