BQ Explains: The Government’s Rs 1.45-Lakh-Crore Debt Hangover

The central government’s budget numbers continue to face scrutiny with the fine print suggesting that the fiscal deficit and public debt are understated.

The route used for this understatement is borrowings via public enterprises, which are captured in the extra budgetary resources raised by the government. The borrowings classified here are those that are fully serviced by the Government of India.

Budget documents show that borrowings via extra budgetary resources had accumulated to a level of Rs 88,454 crore by 2018-19 and will rise further to Rs 1.45 lakh crore by the end of the current fiscal.

The numbers were first flagged-off by CNBC-TV18 on Friday.

Understanding The Numbers

It is first important to understand the numbers and how they are accounted for.

The government puts out a statement of ‘Extra Budgetary Resources’ as part of the expenditure profile. That statement tells us both the aggregate borrowings via extra budgetary resources and what this borrowing has funded.

Let’s first look at the aggregate amount for each financial year, which is reported as ‘flow’ rather than ‘stock’ in each year. The statement shows that extra budgetary resources raised in 2016-17 stood at Rs 9,167 crore, Rs 15,095 crore in 2017-18 and Rs 64,192 crore in 2018-19. These are actuals for each individual year and not just revised estimates.

Adding up the three, you get a figure of Rs 88,454 crore.

For FY20, the government has estimated extra budgetary borrowings of Rs 57,000 crore. If you add that number to the existing extra budgetary borrowings, you get additional government liabilities of Rs 1.45 lakh crore. This amount will add about 1.48 percent of the total net liabilities and about 1.8 percent to public debt.

The government admits which is not accounted for in public debt.

In the statement of government liabilities, which lists public debt and other liabilities, the footnote states: “In addition to above, Govt. liabilities on account of Extra Budgetary Resources (Govt. fully serviced Bonds), at the end of FY 2018-19 were Rs 88,454.10 crore, which was about 0.47 percent of GDP. In FY 2019-20, additional liablilities on this account are estimated to Rs 57,004 crore, which is about 0.27 percent of GDP.”

Fiscal Deficit Impact

The issue, however, is not just of the additional liabilities that the government is incurring. It is also about the kind of spending that is funded by extra budgetary resources.

A list of extra-budgetary resources raised shows that these funds were utilised for flagship government schemes, which should ideally be funded directly through the budget. The largest were on the Pradhan Mantri Aawas Yojana-Urban and the Deen Dayal Upadhyaya Gram Jyoti Yojana.

Had these spends been on-budget, as they should have been, the fiscal deficit would have been 3.74 percent for FY19 and not 3.4 percent as suggested in the revised estimate. In the same manner, if the fiscal deficit for FY20 is calculated while accounting for the extra-budgetary resources, the deficit will be 3.56 percent for FY20 and not the 3.3 percent projected.

Trend Set To Continue?

The government suggests that this is a temporary funding route that it is using and that it intends to stop using extra budgetary resources in the next five years.

“The target is to reduce the accretions to the EBR (extra budgetary resources) stock to zero in five years’ time,” said the government in the Medium Term Fiscal Policy Statement, which is mandated under the Fiscal Responsibility and Budget Management Act. But the government does not deny that in the next few years, it intends to continue using this route as a funding tool.

The medium-term projections showed that liabilities on account of extra budgetary resources are set to rise from 0.7 percent of GDP in 2019-20 to 0.8 percent in 2020-21 and 0.9 percent in 2021-22.