 "Show bank recapitalisation in Budget as fiscally non-neutral: CAG to govt")
The Comptroller and Auditor General of India (CAG) has pulled up the government for not factually showing in 2017-18 and 2018-19 Budgets that bank recapitalisation of public sector banks (PSBs) is not fiscally neutral even though it is cash neutral .
In a report tabled in the Parliament, the CAG said that the government made an investment of Rs 80,000 crore in 2017-18 and of Rs 1,06,000 crore in 2018-19 for the recapitalisation of PSBs.
Funds for these investments were raised by the government through issue of non-transferable special securities to the same PSBs.
CAG noticed that in the expenditure budget the above mentioned expenditure on recapitalisation of the PSBs, had been netted against receipts from issue of special securities, while in the receipt budget, receipts from the securities have been netted against expenditure on recapitalisation.
This treatment is reflected in the computation of fiscal deficit given in the Budget At a Glance (BAG) and in the Medium Term Fiscal Policy Statement (MTFPS). However, in the Union Government Finance Accounts (UGFA) the securities issued to PSBs have been correctly accounted as internal debt of the government and receipts from the same as debt receipts.
CAG said netting of these receipts against expenditure on recapitalisation and investment in the PSBs in the BAG and MTFPS was not in line with the Fiscal Responsibility and Budget Management (FRBM) Act, 2003.
The finance ministry agreed that that bank recapitalisation though cash neutral, is not fiscally neutral as issue of securities would get reflected in the total government debt. Besides, coupon payments for the special securities when made would be reflected in the fiscal deficit of the relevant year.
However, the fact remains that the expenditure should have been shown separately from the receipts and not netted, CAG said.
It recommended that the expenditure and receipts should not be netted in the BAG and shown as correctly reflected in the UGFA.
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