• Off-budget borrowings (or Extra budgetary resources- EBRs) are loans that are taken not by the Centre directly, but by public sector undertakings on the directions of the central government.
• Since the liability of the loan is not formally on the Centre, the loan is not included in the fiscal deficit (FD).
• Such borrowings are a way for the Centre to finance its expenditures while keeping the debt off the books.
• As FD is the most important metric to understand the financial health of government and is keenly watched by rating agencies, EBR allows government to keep FD in acceptable limits.
• However, as such borrowing is not the part of Consolidated Fund of India (CFI) they remain beyond the control of Parliament even though the interest on such loan is paid from CFI.
• Also, Comptroller and Auditor General (CAG) in 2019 has flagged following concerns on EBRs.
• Current quantum of such borrowings “is huge”
• Current policy framework “lacks transparent disclosures and management strategy” for comprehensively managing such borrowings.
• The central government is shying away from making full disclosures.
Mains Paper 3: Economy
Prelims level: Off-budget borrowing
Mains level: About Off-budget borrowing and how the process done in India