5 November 2019
Rising role of off-budget borrowings
Center’s true fiscal deficit was at six-year high of 6.3% of GDP in FY19
Extra-budgetary resources (EBR) or financing fiscal spending through off-budget borrowings is nothing new. EBR is
included in the definition of debt, but is not part of fiscal deficit. However, the excessive reliance of the central
government (CG) on EBR in recent years demands caution. Reported fiscal deficit (RFD) needs to be carefully topped up
with (net) borrowings of various government agencies to arrive at a true adjusted fiscal deficit (adj. FD) of the center.
In this note, we estimate that the adj. FD of the CG stood at 6.3% of GDP in FY19, much higher than the RFD of 3.4%. Our
calculations suggest that the CG’s adj. FD increased from a nine-year low of 4.8% in FY17 to 5.4% in FY18 and further to a
six-year high of 6.3% of GDP in FY19. Further details suggest that the outstanding arrears on account of subsidies were
at a decade-high of 1.3% of GDP (or INR2.5t) in FY19, while the off-budget capital spending was 1.6% of GDP (or
INR3.0t), more than 3x the average size of 0.5% of GDP during the two decades up to FY17.
The combined FD of the general government (center + states) thus was at a seven-year high of 8.8% of GDP in FY19, as
against the RFD of 5.9%. According to our
household net financial savings were broadly unchanged at ~6.7%
of GDP in FY19, implying that the government’s net borrowings were >130% of household surplus – highest since the
late-1990s. These facts not only douse any case for a fiscal stimulus but also explain the ineffectiveness of monetary
Of late, the central government has resorted massively to various agencies to
finance its fiscal spending. Financing fiscal spending through off-budget borrowings
(called EBR) is nothing new. However, over-reliance on EBR suggests that the RFD
must be carefully topped up with (net) borrowings of various government agencies
to arrive at the true adj. FD of the central government.
According to a statement issued by the Comptroller Auditor General (CAG) in its
on Compliance of the FRBM Act,
“…Government has increasingly
resorted to off-budget financing for revenue as well as capital spending…”
reports for 2017-18 and 2018-19 are not yet available. According to a Jul’19 report
in a presentation to the 15
Finance Commission, the CAG
re-calculated the fiscal deficit for 2017-18 after accounting for the extra-budgetary
resources. According to the CAG presentation, fiscal deficit for 2017-18 was at 5.85%
of GDP, as against RFD of 3.46% for the same period.
In this note, we estimate
the adjusted fiscal deficit of
India’s central government
during the past two
decades up to FY19 after
incorporating the off-
In this note, we estimate the adj. FD of India’s central government for the past two
decades up to FY19 after incorporating (a) the outstanding arrears on account of
various subsidies (off-budget revenue spending) and (b) off-budget capital spending
done by five government agencies – National Bank for Agriculture and Rural
Development (NABARD), National Highway Authority of India (NHAI), Power Finance
Corporation (PFC), Indian Railways Finance Corporation (IRFC) and REC Ltd – and GoI
fully-serviced bonds (raised by agencies other than the five mentioned above). We
thus also estimate the adjusted revenue deficit (adj. RD) of the center.
Nikhil Gupta – Research Analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
– Research Analyst
(Yaswi.Agarwal@motilaloswal.com); +91 22 7193 4196
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