Fiscal deficit way past 3.5% goal if off-budget borrowings are factored in

Adding these borrowings, amounting to Rs 1.86 trn, to the Rs 7.96 trn projected fiscal deficit would take the actual deficit to 4.37% of GDP, and not the official 3.5% estimate

It began last year, but the data on off-budget borrowing has now come into its own in Budget 2020. Finance minister Nirmala Sitharaman has shown the number for the first time in Indian budget history and it stands at Rs 1,86,000 crore for 2020-21. So add this to the projected Rs 7,96,337 crore shown as fiscal deficit. It means the actual fiscal deficit is 4.37 per cent of the GDP. Not the fearful plus five per cent, but also less pretty than the 3.5 per cent for next year. 

The sum includes two streams. The first is the extra-budgetary resources mobilised through issue of fully serviced bonds by the government to finance some of the expenditures of the departments of health & family welfare, higher education, water resources, river development & ganga rejuvenation and the  ministry of housing & urban affairs among others. This was shown last year and there is not much surprise here at Rs 49,500 crore. The larger one is the Rs 1,86,100 crore for the departments of food & public distribution, including a mega one for Food Corporation of India at Rs 1,10,000 crore. This is what was missing in the figures last year, concealed in the expenditure budget, but not shown up front.

But this is not the whole story yet. There is also the matter of capital Infusion in government run banks. The budget itself says the sum was Rs 80,000 crore in 2017-18 and another Rs 1,06,000 crore in 2018-19 for their recapitalisation. For the current financial year, the sum allocated for the purpose is Rs 70,000 crore. It is done through issuance of GoI special Securities carrying a fixed coupon. If one adds a similar liability for the next financial year and the liabilities of the government on account of annuity projects, which amounts to another Rs 44,000 crore, the fiscal deficit for 2020-21 would cross 5 per cent. 

In Budget 2020, it would seem the finance minister has gone half way in terms of transparency in showing the actual extent of the fiscal deficit of the government. Would this satisfy the investors and rating agencies is a moot question at this stage?