Centre not likely to go for any off-Budget borrowing this year

Union Finance Minister Nirmala Sitharaman, in this year’s Budget speech, had said that she would discontinue extra-budgetary resources (EBR) funding for the Food Corporation of India, in a continued bid to clean up the central government’s balance sheet and end below-the-line accounting. As a result, the EBR provision for 2021-22 was just Rs 30,000 crore against Rs 1.26 trillion in 2020-21.

But Business Standard has now learnt that even that Rs 30,000-crore provision remains unutilised and as a result off-budget financing this year can be negligible or even zero.

EBR are when expenditure is allotted for schemes run by government agencies but not financed through the Centre’s revenues or borrowings. Instead, state-owned entities raise these amounts either through loans from the National Small Savings Fund, or bonds that are guaranteed by the Centre. This means that EBR are not counted as part of the Centre's expenditure and hence, don’t reflect in the fiscal deficit numbers.

“We kept a provision of Rs 30,000 crore this year because there were certain schemes that had a practice of off-budget borrowing, and there were certain committed loans by NABARD, HUDCO, etc, which could not be interrupted so quickly. So, we kept that provision as a safety valve in case it was necessary, but actually, it has not been used,” said a top government official, who added that the provision is unlikely to be used this year.

The practice of off-budget financing or EBR started in 2016-17, and until last year, large sums were kept outside the fiscal deficit calculations.

Had these EBR been counted as part of “above the line expenditure”, the budgetary deficit would have been quite different.

For example, the Centre’s revised fiscal deficit for 2020-21 was 9.36 per cent of nominal gross domestic product (according to the Reserve Bank of India data). Had the EBR of Rs 1.26 trillion been included in the calculations, the fiscal deficit for last year would have been 10 per cent.

Similarly, including the EBR of Rs 1.48 trillion, the fiscal deficit for 2019-20 would have been 5.3 per cent of nominal GDP, instead of 4.6 per cent. The highest off-budget provisioning in any year was Rs 1.62 trillion for 2018-19, or 0.86 per cent of nominal GDP. That year, had this amount been above the line, the fiscal deficit would have been almost 4.3 per cent and not the official 3.4 per cent.

Since Sitharaman took over as finance minister, there has been a constant endeavour in North Block to reduce off-budget borrowing, and present to Parliament a relatively accurate representation of the budgetary deficit.

The 2019-20 Budget had started the practice of disclosing EBR and the scope and coverage of off-budget borrowing was expanded in the 2020-21 Budget by showing NSSF loans to FCI, the biggest such yearly EBR.

This is a move that has been hailed by economists and policy-watchers as it makes budgeting a more transparent process.