CAG indicts Modi govt for masking fiscal, revenue deficits

CAG indicts Modi govt for masking fiscal, revenue deficits

News:

The Comptroller and Auditor General of India (CAG) has submitted its audit report on Off-Budget financing.

Important Facts:

• Government adopted off-budget means of financing the subsidy arrears, thereby deferring the payment in the relevant financial year.
• According to CAG report Government in terms of Revenue Expenditure, off-budget financing was used for covering the deferment of fertilizer bills through special banking arrangements, food subsidy bills through borrowings and for implementation of irrigation scheme (Accelerated Irrigation Benefits Programme) through National Bank for Agriculture and Rural Development.
• In terms of capital expenditure, off-budget financing of railway projects through borrowings of the IRFC (Indian Railway Finance Corp.) and financing of power projects through the PFC (Power Finance Corp.) are outside the budgetary control.

Problem with Off Budget Financing:

• Off-budget financing is outside the parliamentary control has implication for fiscal indicators as they “understate” government’s expenditure in the year by keeping them off the budget.
• Huge off-budget financing lacks transparent disclosures and could pose fiscal risk in the long term in case the entity that raises the funds fails to meet debt servicing.

Government Argument:

• The government has made amendments in the FRBM architecture through the Finance Act, 2018, presented along with Budget 2018-19.
• In the revised FRBM architecture, the government focused on achieving the fiscal deficit target of 3% of gross domestic product by the end of 2020-21.
• Government refuted the CAG charge by maintaining that since amendments to the FRBM Act in 2018 include a debt target, it has legislative control over Off-Budget financing.

Recommendation of CAG on off-budget liabilities

• Government should have a policy framework for off-budget financing The framework should specify the rationale and objective of off-budget financing, quantum of off-budget financing and sources of fund, among others.
• Government should specify the rationale and objective of off-budget financing, quantum of off-budget financing, instruments and sources of financing and means and strategy for debt servicing of off-budget financing.
• Bodies owned by the government should disclosed all details of off-budget financing undertaken during a fiscal.
• The government may consider disclosing the details of off-budget borrowings through disclosure statements in the budget.