CAG indicts govt for masking deficits

NEW DELHI :India’s national auditor has criticized the Narendra Modi government for borrowing through off-budget channels to finance capital and revenue spending in 2016-17, a practice that masks the true extent of fiscal and revenue deficits.

In a report presented in Parliament on Tuesday, the Comptroller and Auditor General of India (CAG) recommended that the government consider instituting a policy framework for offbudget financing which, among other things, should include a disclosure about its rationale and objective to the Parliament.

In its audit report on Compliance of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 for fiscal 2016-17, CAG said that in terms of revenue spending, off-budget financing was used for covering the deferment of fertilizer bills through special banking arrangements; food subsidy bills of Food Corporation of India through borrowings and for implementation of irrigation scheme (Accelerated Irrigation Benefits Programme) through borrowings by the National Bank for Agriculture and Rural Development under the Long Term Irrigation Fund (LTIF).

“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. Such off-budget financing are not part of calculation of the fiscal indicators despite fiscal implications,” CAG observed.

For example, the government spent ₹78,335 crore for food subsidy in 2016-17, and carried over ₹81,303 crore to the next fiscal year. Similarly, for fertiliser subsidy during the same year, it spent ₹70,100 crore and carried over ₹39,057 crore to the next year.

The CAG said the huge offbudget 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.

The finance ministry, however, refuted the CAG’s charge by maintaining that since amendments to FRBM Act in 2018 include a debt target, it is incorrect to say that there is no direct legislative control over offbudget borrowings.

The government has made comprehensive amendments in the FRBM architecture through Finance Act 2018 presented along with Budget 2018-19 in view of the recommendations made by the FRBM Review Committee.

THE CAG SAID THE HUGE OFF-BUDGET FINANCING LACKS TRANSPARENT DISCLOSURES AND COULD POSE RISKS IN THE LONG TERM