The Comptroller and Auditor General (CAG) said that the numbers in the Union Budget fail to include the growing off-budget liabilities of the Union government.
The CAG would like these numbers to be included in the Budget estimates.
What was Government’s response?
The government argues that it has already gone further than required in the Union Budget 2019-20 to account for these borrowings.
It says that this accounting is done, as the repayment of principal and interest of off-Budget borrowings are made through the Budget.
It also points out that there is no formal requirement to include off-Budget borrowing in the estimate of the fiscal deficit.
The government is quite right about the above matter. But, appealing to formal requirements is a weak argument in this context.
What is CAG’s point of view?
It says that the fiscal deficit number is not an accurate reflection of the government’s spending and borrowing behaviour over the financial year.
It pegs the actual fiscal deficit close to 6%, as distinct from the 3.3% claimed by the government in the Budget 2019-20.
What method reflects the government’s fiscal behaviour correctly?
There is no credible claim that the fiscal deficit is the right number to look at to judge fiscal prudence.
The correct way to resolve this would be to examine a public-sector borrowing requirement measureand a flow variable for the public debt.
This debt should take into account budgetary spending and off-budget liabilities, and all the other contingent liabilities of the government.
This method would provide a transparent accounting of the degree to which the choices of the Union government are adding to the debt burden of future generations.
What could be done further?
The government borrows from the markets and help itself to finance its spending priorities.
In this manner, the fiscal deficit covers up the government’s real fiscal carelessness.
The Finance Commission should reconsider how governmentstatistics about its spending and borrowing are presented.
Such a revaluation would aid the government in planning public investment and savings.
This revaluation would also aid the broader investment community, which seeks a clearer understanding of state choices and the future condition of the public debt market.
Source: Business Standard
Quick Facts
Fiscal deficit
It is the difference between total revenue and total expenditure of the government.
It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
