What are off-budget borrowings?

Off Budget Borrowings:

  • These are loans that are taken not by the Centre directly and are not calculated under the budget.  These loans are taken by PSUs or other public institutions on the directions of the central government. Such borrowings are used to fulfill the expenditure needs of these institutions.
  • Are these borrowings included in the fiscal deficit? The liability to repay these loans is not formally on the Centre. Thus, they are not included in the national fiscal deficit. This helps keep the country’s fiscal deficit within acceptable limits.
  • CAG Report: In 2019, Comptroller and Auditor General report has pointed out that this route of financing puts major sources of funds outside the control of Parliament.
  • How are off-budget borrowings raised? The government can ask a PSU to raise the required funds from the market through loans or by issuing bonds.
    • Example: In the Budget 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.
  • What will be the fiscal deficit if we include off-budget borrowings? Due to various sources of off-budget borrowing, the true fiscal deficit is difficult to calculate. However, in July 2019, the CAG had pegged the actual fiscal deficit for 2017-18 at 5.85% of GDP instead of the government version of 3.46%.

Source: Indian Express

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