Chidambaram pokes holes in Centre's fiscal deficit roadmap

Former Union Finance Minister P Chidambaram today said the NDA government's claims to bring fiscal deficit to 3.5 per cent was built on factors like avoidance of direct borrowing and instead asking Ministries like Railways to go for it.
Terming it as unacceptable, he said "instead of the government borrowing, and showing it as part of the fiscal deficit, and giving it to Ministry of Railways and Road Transport as budgetary grant, you (Centre) are asking them to borrow."
The Centre is expected to achieve fiscal deficit target of 3.9 per cent in the current fiscal and 3.5 per cent in 2016-17.

Addressing students of Loyola Institute of Business Administration here on the Union Budget 2016-17, he said such borrowings by the Ministries would not be reflected in the budget-balance sheet.
"It means this borrowing (by Ministries) is kept outside the budget, this is off the balance sheet borrowing," he said. The Ministry of Road Transport in 2014-15, when UPA went out of office, borrowed only Rs 3,343 crore, which was a small per cent of total expenditure, he said.
"Today you say it is going to borrow 60,000 crore, the correct thing to do is the government should borrow and give as Gross Budgetary Support and that would have hit the fiscal deficit," he said.

Therefore, he said the Centre was showing it off balance sheet off budget. He said Indians may accept such an approach. However, foreign analysts may not accept it.

"I am afraid, while Indians may accept it, as far as Indians are concerned if Government of India does it (borrowing) or a Ministry (does it) what does it matter?."
"For foreign analysts, (however) he is not going to miss the number, he will point out that this is nothing but off the balance sheet borrowing."
He pointed out that "he (analyst) is going to add it back to fiscal deficit and say that your fiscal deficit is not 3.5 per cent as you claim it to be and it is much higher than that. I am afraid, this is not the right approach."

"If the government wants to borrow, it must borrow straight on the balance sheet, on the budget and give it to the ministry as GBS.," he said.
Arguing that while small amounts could be borrowed by individual ministries and PSUs, he said "but to ask them to borrow 59,000 crore (railways) and 40,000 crore (road transport) and show it off the balance sheet and then say that our Fiscal deficit is 3.5 per cent is I am afraid is not acceptable.