One of the leading and interesting trends about the government budget is that the borrowing made by government entities to run various government schemes are not shown in the budget. These borrowing may be done to finance some of the budgeted schemes like food subsidy and may be done by government owned entities like the Food Corporation of India. If these items are also included, the fiscal deficit of the government may shoot up. These borrowings made by the government owned entities that are effectively becomes the debt of the government are known as extra budget borrowings or resources. They are also known as off-budget resources. Both the centre and states are making such borrowings.
What are extra budgetary borrowings?
According the budget document, “Extra budgetary resources (EBRs) are those financial liabilities that are raised by Public Sector Undertakings for which repayment of entire principal and interest is done from Government budget,”
Such borrowings are made by state-owned firms to fund government schemes but are not part of the official budget calculations.
Extra budget borrowing is excluded from the fiscal deficit calculations, but at the same time, are added to the total debt of the government.
In recent years, several CPSUs have raised resources from the market by issuing Government of India-Fully Serviced Bonds (GoIFSB) for which the repayment of both principal and interest is to be done from the Budget.
This means that though the borrowing is not a part of the consolidated fund of India, the interest payment for such borrowings are made out of the consolidated fund.
The borrowings are made through Government of India fully serviced bonds and NSSF Loans)
As per the government data, at end-March 2019, total outstanding liabilities on account of EBRs were 0.5 per cent of GDP and it is expected that by end-March 2020 they may rise to 0.7 per cent of the GDP.
Use of the extra budget borrowings
Several budgets announced schemes are financed out of extra budget borrowings. These borrowings are done by the public sector entities that are administering the schemes. In the past, schemes like the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY), Deen Dayal Upadhayay Gram Jyoti Yojana (DDUGJY), Swachh Bharat Mission (SBM), Pradhan Mantri Awas Yojana (PMAY), etc were financed out of extra budget borrowings.
Main entities that have borrowed are FCI, National Highway Authority of India, National Bank for Agriculture and Rural Development (NABARD), which has borrowed for both rural development and irrigation projects. Similarly, Housing and Urban Development Corporation (HUDCO) for housing projects and Rural Electrification Corporation (REC) for electrification projects have also added to the extra budget borrowings.
In the same way, several state entities have also made extra budget borrowings. An interesting example is the Kerala government owned KIIFB that borrowed through issuing Rupee Denominated Bonds.
CAG on off budget expenditure
The Comptroller and Auditor General of India has raised concern about rising off budget borrowings. “Government has increasingly resorted to off-budget financing for revenue as well as capital spending. In terms of revenue spending, off-budget financing was used for covering deferring fertilizer arrears/bills through special banking arrangements; food subsidy bills/arrears of FCI through borrowings and for implementation of irrigation scheme (AIBP) through borrowings by NABARD under the Long Term Irrigation Fund (LTIF).” – CAG.
“In terms of capital expenditure, off budget financing of railway projects through borrowings of the IRFC and financing of power projects through the PFC are outside the budgetary control,”- the CAG observed.
Fifteenth Finance Commission on Extra budgetary resources
The Fifteenth Finance Commission in its initial report advised both the centre and the states to eliminate extra budget borrowings.
The Commission noted that there is increasing tendency of the Union and State Governments to borrow outside the Consolidated Fund, leading to accumulation of extra-budgetary liabilities.
Hence, the Commission recommended that in the interest of transparency, both the Union and the States have to make full disclosure of extra-budgetary borrowings. Outstanding extra-budgetary liabilities need to be clearly identified and eliminated in a time-bound manner as per the amended FRBM Act of 2018.