Off-budget financing understates govt's expenditure, creates liability: CAG

The government must set framework to specify rationale of off-budget financing, said CAG

The government should frame a policy on off-budget financing and sources of such funding in view of its fiscal implication, said a CAG report on the Fiscal Responsibility and Budget Management (FRBM).

In the report tabled in Parliament Tuesday covering fiscal 2016-17, the Comptroller and Auditor General of India (CAG) said off-budget financing was being used to defer fertiliser arrears, food subsidy bills and outstanding dues of Food Corporation of India (FCI) through borrowings.

It said that off-budget financing being outside the parliamentary control has implication for fiscal indicators as they "understate" government's expenditure in the year by keeping them off the budget.

"Such off-budget financial arrangement, defers committed liability (subsidy arrears/bills) or create future liability and increases cost of subsidy due to interest payment," the report said.

In order to address these issues, it said the government should consider "putting in place" a policy framework for off-budget financing.

The framework should specify the rationale and objective of off-budget financing, quantum of off-budget financing and sources of fund, among others.

CAG further said the government should also consider disclosing the details of off- budget borrowings through disclosure statements in Budget as well as in accounts.

The objective of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was to provide for the responsibility of the Central Government to ensure inter-generational equity in fiscal management and long-term macro-economic stability.