CAG report on the Fiscal Responsibility and Budget Management

• India’s national auditor has criticized the Narendra Modi government for borrowing through off-budget channels to finance capital and revenue spending in 2016-17, a practice that masks the true extent of fiscal and revenue deficits.

• In a report the Comptroller and Auditor General of India (CAG) recommended that the government consider instituting a policy framework for off-budget financing, which, among others, should include a disclosure about its rationale and objective to parliament.

• In its audit report on Compliance of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 for fiscal 2016-17,

Important points highlighted by the CAG

• CAG said that in terms of revenue spending, off-budget financing was used for covering the deferment of fertilizer bills through special banking arrangements; food subsidy bills of the Food Corporation of India through borrowings and for implementation of irrigation scheme (Accelerated Irrigation Benefits Programme) through borrowings by the National Bank for Agriculture and Rural Development (Nabard) under the Long Term Irrigation Fund.

• CAG said the huge off-budget financing lacks transparent disclosures and could pose fiscal risk in the long term in case the entity that raises the funds fails to meet debt servicing.

• The government has made comprehensive amendments in the FRBM architecture through the Finance Act, 2018, presented along with Budget 2018-19, in view of the recommendations made by the FRBM Review Committee headed by N.K. Singh.

• In the revised FRBM architecture, the government will simultaneously target debt and fiscal deficit and treat fiscal deficit as an operational target, with the focus on achieving the target of 3% of gross domestic product by the end of 2020-21.

• CAG maintained that off-budget financing is a tool of deferring expenditure for subsequent years as the modality of repayment of borrowing is not spelt out.

• CAG recommended that the disclosure to Parliament on off-budget liabilities should be threefold.

• The rationale and objective of off-budget financing; quantum of off-budget financing; instruments and sources of financing; and means and strategy for debt servicing of off-budget financing.

• Details of off-budget financing undertaken during a fiscal by all the bodies substantially owned by the government should be disclosed.

• The government may consider disclosing the details of off-budget borrowings through disclosure statements in the budget.

Mains Paper 2: Polity

Prelims level: Fiscal Responsibility and Budget Management

Mains level: Important highlights enlighten by the CAG

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