{"id":4393,"date":"2019-09-14T22:49:05","date_gmt":"2019-09-14T17:19:05","guid":{"rendered":"https:\/\/triumphias.com\/blog\/?p=4393"},"modified":"2019-09-14T22:49:05","modified_gmt":"2019-09-14T17:19:05","slug":"fiscal-deficit-analysis","status":"publish","type":"post","link":"https:\/\/triumphias.com\/blog\/fiscal-deficit-analysis\/","title":{"rendered":"Fiscal Deficit: Analysis"},"content":{"rendered":"<p><strong>Relevance: Mains: Current affairs analysis<\/strong><\/p>\n<p><strong>News Related<\/strong><\/p>\n<ul>\n<li>The fiscal deficit numbers mentioned in the Union Budget for 2019\u201320 are doubtful, given that the total liabilities of the government are understated as the off-budget finance items are excluded from the fiscal deficit calculations.<\/li>\n<\/ul>\n<p><strong>What is Off-budget financing<\/strong><\/p>\n<ul>\n<li>Off-budget financing is a tool being used to defer expenditure to subsequent years, and the modality of repayment of borrowing is not spelt out.<\/li>\n<li>They are not accounted for in the current budget because they are future liabilities and not current liabilities. They are, however, part of the overall debt of the government.<\/li>\n<li>Successive governments have used this route to defer some of their liabilities and exclude them from the fiscal deficit calculations.<\/li>\n<li>Such off-budget financing creates future liability and increases the subsidy cost due to interest payments. Of late, the central government has increased off-budget borrowings to fund capital and revenue expenditure such as food and fertiliser subsidy arrears.<\/li>\n<\/ul>\n<p><strong>CAGs Report on Off-budget financing<\/strong><\/p>\n<ul>\n<li>Comptroller and Auditor General\u2019s (CAG) report mentioned that the off-budget financing was being used to defer fertiliser arrears, food subsidy bills, and outstanding dues of the Food Corporation of India (FCI) through borrowings.<\/li>\n<li>Off-budget financing was used for deferring the fertiliser bills through special banking arrangements<\/li>\n<li>Food subsidy bills of the FCI was being deferred through bonds, unsecured short-term loans, Borrowings of NABARD under the Long-Term Irrigation Fund for implementation of irrigation schemes (Accelerated Irrigation Benefits Programme)<\/li>\n<li>In terms of capital expenditure, off-budget financing is used to fund railway projects through borrowings from the Indian Railway Finance Corporation (IRFC) and power projects through borrowings from the Power Finance Corporation (PFC).<\/li>\n<\/ul>\n<p><strong>Reality versus Projections<\/strong><\/p>\n<ul>\n<li>It is extremely important to look at the total debt of the government with reference to the gross domestic product (GDP).<\/li>\n<li>The total liability worked out to 50.5% of the GDP against the projection of 47.10% as mentioned in the medium-term fiscal policy (MTFP) statement of 2016\u201317.<\/li>\n<li>Similarly, after incorporating the off-budget borrowings for revenue expenditure, the revenue deficit stands at 3.48% of the GDP against 2.59% reported by the government for 2017\u201318.<\/li>\n<li>After adding the off-budget borrowings for capital expenditure, the fiscal deficit stands at 5.85% of the GDP against 3.46% reported by the government for 2017\u201318.<\/li>\n<\/ul>\n<p><strong>Challenges in addressing the issue<\/strong><\/p>\n<ul>\n<li>Currently, there is no policy that governs such off-budget financial arrangements, and the government is free to decide the mode and quantum of such financing.<\/li>\n<li>There has been an absence of transparent disclosures on such huge off-budget financing, which can pose substantial fiscal risk in case the entity that raises the funds fails to service the debt.<\/li>\n<\/ul>\n<p><strong>Way Forward<\/strong><\/p>\n<ul>\n<li>Given that such off-budget financing has serious fiscal implications on the economy, the CAG report recommended that the central government should frame a policy on off-budget financing.<\/li>\n<li>The framework should specifically mention the objectives and quantum of off-budget financing, the sources of such funding, and the means for servicing of such debt.<\/li>\n<li>The details of such off-budget borrowings should be disclosed through disclosure statements in the budget as well as in the government accounts.<\/li>\n<li>It is recommended that the government include the off-budget financing items for calculation of the revenue deficit, effective revenue deficit, and fiscal deficit.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Relevance: Mains: Current affairs analysis News Related The fiscal deficit numbers mentioned in the Union Budget for 2019\u201320 are doubtful,<\/p>\n","protected":false},"author":1,"featured_media":4359,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[123,42,43],"tags":[392],"class_list":["post-4393","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","category-general-studies-iii-technology-economic-development-bio-diversity-environment-security-and-disaster-management","category-indian-economy","tag-union-public-service-commission-upsc"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/4393","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/comments?post=4393"}],"version-history":[{"count":1,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/4393\/revisions"}],"predecessor-version":[{"id":4394,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/4393\/revisions\/4394"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media\/4359"}],"wp:attachment":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media?parent=4393"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/categories?post=4393"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/tags?post=4393"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}