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Budget 2020 makes govt's off-budget financing more transparent

Dipak Mondal     February 3, 2020

Lack of clarity over India's real fiscal deficit numbers has been an issue of debate among most macro-economic commentators and economists with many casting aspersions on the headline fiscal deficit numbers.

In the budget this year, finance minister Nirmala Sitharaman has tried to clear the web of confusion by disclosing in the budget document the quantum of borrowings that are not part of the government financial accounts.

In her budget speech, the finance minister said: "Recently there has been a debate over transparency and credibility of the projected fiscal numbers. Let me assure the House that the procedure adopted is compliant with the FRBM Act.  This is also consistent with the practices hitherto followed. However, for greater clarity, I have enumerated those central government debt that are not part of market borrowing and are used to fund the expenditure at the annexes.  Servicing of interest and repayment of these debts as hitherto, are done out of Consolidated fund of India."

FULL COVERAGE:Union Budget 2020

The new disclosed data on extra-budgetary resources shows that the government expects to raise Rs 1.86 lakh crore through extra budgetary resources in 2020-21 compared to Rs 1.73 lakh crore in 2019-20. Taking into account the Rs 1.73 lakh crore, the fiscal deficit for the current financial year would be 4.6 per cent instead of 3.8 per cent, and 4.4 per cent instead of 3.5 per cent in 2020-21.

The majority of Rs 1.86 lakh crore would come from Food Corporation of India (FCI), which will contribute Rs 1.36 lakh crore towards food subsidy bill in 2020-21. The government has made budget allocation of Rs 1.15 lakh crore towards food subsidy. Last year the food subsidy allocation was Rs 1.84 lakh crore, which was revised downward to Rs 1.08 lakh crore. The reason for such a sharp downward revision is that a part of the food subsidy bill has been billed to FCI's account.

Experts have welcomed the government's move to bring in more clarity in fiscal numbers.

Thomas Rookmaaker, Director and Primary Sovereign analyst for India, Fitch Ratings, says: Greater fiscal transparency around off-budget financing is welcome, as the new budget now explicitly recognises borrowing from the National Small Savings Fund of 0.8 per cent of GDP in both 2019-20 and 2020-21, for example, to finance food subsidies, although this is not incorporated in the headline figure (which would be 4.6 per cent of GDP in FY20 instead of 3.8 per cent).

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