Economy

₹80,000-cr cut in off-balance sheet borrowing may be an optical illusion

Radhika Merwin | Updated on July 07, 2019 Published on July 07, 2019

Slashing of FCI borrowings by ₹87,000 crore may have to be made up before fiscal year-end

On the face of it, the Centre appears to have slashed its extra-budgetary resources for the current fiscal year, as against what was pegged in the interim Budget. Given that the Centre’s increasing reliance on off-balance sheet borrowings to fund its expenditure over the past two to three years has been drawing a lot of attention, the steep reduction may have offered some comfort.

But a closer look at ministry-wise numbers suggests that the Centre could well resort to higher off-balance borrowings to meet its expenditure by the end of the fiscal year — the steep reduction in the Budget being nothing more than an optical treat.

Internal and Extra Budgetary Resources (IEBR) constitute funds raised by Central public sector enterprises by way of profits, loans and equity. IEBR is kept out of the fiscal deficit calculation. Over the past three years, IEBR has been moving up substantially, implying that the government is increasingly using its off-budget borrowings through public sector agencies to avoid showing such borrowings in its own books.

In the interim Budget, the overall expenditure through resources of public enterprises (IEBR), had been estimated at ₹6.17 lakh crore for FY20.

In the recently announced Budget, this amount has shrunk significantly, by nearly ₹80,000 crore to ₹5.37 lakh crore.

 

 

Where it has been slashed

Given that the off-balance sheet borrowing pegged for the current fiscal is the lowest since FY18 — when it first started to shoot up — it should ideally offer some comfort.

But the reduction has been solely due to the lowering of about ₹87,000 crore in extra budgetary borrowings in one particular department — The Department of Food and Public Distribution.

From ₹1.78 lakh crore projected in the interim Budget, expenditure for the current fiscal for the department through resources of public enterprises, has been crimped to about ₹90,400 crore in the recent Budget.

This essentially pertains to the borrowings made by the Food Corporation of India. Since FY17, FCI has been borrowing from the National Small Savings Fund (NSSF) to make good the shortfall in the food subsidy due by the Centre. The total outstanding loan of FCI from NSSF stood at ₹1.91 lakh crore in FY19, according to the latest information available on the FCI website.

The drastic cut in the extra-budgetary resources of the FCI in the Budget vis-à-vis that pencilled in in the interim Budget, implies that the Centre hopes to pay for the food subsidy out of its budgetary resources.

Fiscal constraints

But a major portion of the Centre’s reduction in revenue expenditure in FY19 (per the Controller General of Accounts’ provisional actual figures) had come from crimping on food subsidies. In FY19 too, given that the Centre was not able to foot the budgeted subsidy, FCI had to take additional loans.

The total food subsidy stood at about ₹1.7 lakh crore for FY19, which has been upped to ₹1.84 lakh crore in FY20. Given the fiscal constraints in the current fiscal year, it is likely that the Centre would find it difficult to pay the entire food subsidy out of its budgetary resources. The FCI may well end up taking an additional loan to make up for the shortfall.

 

 

Hence, overall off-balance sheet borrowings could shoot up by the end of the year.

It is possible that the Centre is keeping this buffer handy, in case it fails to meet its budgeted targets on the receipts front. Moving part of the food subsidy below the line once again may just do the trick on the fiscal arithmetic.

Published on July 07, 2019
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