B K REDDY SIR RAU’S IAS

3 FISCAL POLICY
UNION BUDGET
 Under Article 112, the Government is required to present Annual financial
statement (AFS) before both the houses of the Parliament. Contains
Appropriation Bill (Expenditure Side) and Finance Bill. (Receipts).
 Presented in terms of (a) Consolidated Fund of India, (ii) Contingency Fund
of India and (iii) Public Account of India. The Indian Constitution mandates
that AFS should distinguish the expenditure on revenue account from the
expenditure on other accounts.
INTERIM BUDGET
Budget which is announced in an election year by the incumbent government
and hence applicable for a part of financial year until the new government takes
over. No provision in the Constitution that prohibits the Government from
announcing new schemes or making amendments to the taxation in the Interim
Budget. However, as per the established parliamentary convention, generally,
the incumbent government does not announce new schemes and programmes.
Similarly, on the revenue side of the budget, no tax proposals are made. Thus,
normally the Interim Budget does not contain Finance Bill and Economic
Survey.

DIFFERENCE BETWEEN INTERIM BUDGET AND VOTE-ON-

ACCOUNT
The Interim Budget is an estimate of the both receipts and expenditure of the
Government. Through the Vote-on-account, the incumbent government seek
approval from the parliament for withdrawing money to meet its expenditure
needs until the new government takes over.

Economic Survey (E.S.): An Introduction

 Economic Survey is the flagship annual document of the Ministry of

Finance, Government of India (GOI) which reviews the developments in
the Indian economy in the previous financial year, summarizes the
performance on major development programmes, and highlights the policy
initiatives of the government and the prospects of the economy in the short
to medium term.
 It is an indispensable document tabled before the budget in both the houses
that explains issues, analyses data, suggests ways and solves various socio-
economic issues prevalent in India. It processes the data, facts and numbers
 availed from the National Statistics Organisation (NSO) and the
Ministry of Statistics and Programme Implementation.
 India being a parliamentary democracy, the executive is accountable to the
House of the People. To ensure this bond of trust, the constitution has laid
down various provisions among which the laying down of the Annual
Financial Statement is arguably the most important. The Annual Financial
Statement (Article 112) or more commonly known as the Union Budget
is a compendium of various documents containing the revenues and
expenditures required by the Executive to function adequately.
 Though Economic Survey has not been mentioned in the constitution
explicitly, it was first introduced for the financial year 1950-51. It can be
inferred that the Economic Survey has been carried out right from the
tabling of the first Budget of Republic of India.
 Interestingly, presenting the Economic Survey is not the constitutional
obligation of the government like the Budget, however it has been tabled
every year.

Advantages of the Economic Survey

Economic Survey has the following advantages:
a) Enrichment of the elected representatives: The Parliamentarians are
representatives of the people but they may lack the technical knowhow of
the economic scenario of the country. The survey gives an insight to them
on the ground status of schemes and policy measures. This will further help
them in discussing about new reforms to be undertaken for the benefit of
the people.
b) Infusion of expert knowledge: During preparation, the Department of
Economic Affairs itself allows experts in the field to discuss and suggest
ways to improve budgetary allocations for the next financial year on the
basis of their sectoral expertise.
c) Tool for accountability: It is an important document to ensure
accountability as it allows us to assess the expenditures incurred by the
government in the current financial year.
d) Future outlook: It provides the government an opportunity to spell its
economic policy for the future.

STAGES IN THE ENACTMENT OF THE BUDGET

Scrutiny by
Presentation of General
Departmental
Budget Discussion
Committees

Passing of Voting on
Passing of
Appropriation Demands for
Finance Bill
Bill Grants

 PRESENTATION OF BUDGET
Since 2017 the budget is presented on the First day of February. The Finance
Minister presents the General Budget with a speech known as the ‘budget
speech’. At the end of the speech in Lok Sabha, the budget is laid before the
Rajya Sabha, which can only discuss it and has no power to vote on the
demands for grants.

 GENERAL DISCUSSION
The general discussion on budget begins a few days after its presentation. It
takes place in both the Houses of Parliament and lasts usually for three to four
days.

 SCRUTINY BY DEPARTMENTAL COMMITTEE

After the General Discussion on the budget is over, the houses are adjourned
for three to four weeks. During this gap period, the 24 departmental standing
committees of Parliament examine and discuss in detail the demands for grants
of the concerned ministries and prepare reports on them. These reports are
submitted to both the house of parliament.

 VOTING ON DEMANDS FOR GRANTS

In light of the reports of Departmental Standing Committees, the Lok Sabha
take up ‘Voting on demands for grants’. The demands are presented ministry-
wise. A demand becomes a grant after it has been duly voted. It is to be noted
that at this stage the members of Parliament can move motions to reduce any
demand for grant. Such motions are called ‘cut motions’
 PASSING OF APPROPRIATION BILL
After voting on demands for grants, an appropriation bill is introduced to
provide for the appropriation out of the consolidated fund of India. At this
stage, no amendments can be proposed in either house of the Parliament.

 PASSING OF FINANCE BILL

The Finance Bill is introduced to give effect to the financial proposals of the
Government of India for the following year. Unlike the Appropriation Bill, the
amendments (seeking to reject or reduce a tax) can be moved in the case of
finance bill.
LIST OF DOCUMENTS LAID DOWN IN BUDGET
1. Annual Financial Statement
2. Demand for Grants
3. Finance Bill
4. Statements made under FRBM Act
a.Macro-economic Framework Statement
b. Medium Term Fiscal Policy cum Fiscal Policy Strategy Statement
5. Expenditure Budget
6. Receipt Budget
7. Expenditure Budget
8. Memorandum Explaining Provisions of Finance Bill
9. Output Outcome Monitoring Framework
10. Key features of budget
11. Implementation of Budget Announcements 2020-21
DETAILS
1. Annual Financial Statements is mandated by Article 112 of the Constitution.
It shows the estimated receipts and expenditure of the Government of India
for 2021-22 in relation to estimates for 2020-21 as also actual expenditure
for the year 2019-20. The receipts and disbursements are shown under three
parts in which Government Accounts are kept viz., (i) The Consolidated
Fund of India, (ii) The Contingency Fund of India and (iii) The Public
Account of India. The Annual Financial Statement distinguishes the
expenditure on revenue account from the expenditure on other accounts, as
is mandated in the Constitution of India.
2. Demand for Grants is mandated by Article 113 of the Constitution. Article
113 of the Constitution mandates that the estimates of expenditure from the
Consolidated Fund of India included in the Annual Financial Statement and
required to be voted by the Lok Sabha, be submitted in the form of Demands
for Grants. The Demands for Grants are presented to the Lok Sabha along
with the Annual Financial Statement. Generally, one Demand for Grant is
presented in respect of each Ministry or Department. However, more than
one Demand may be presented for a Ministry or Department depending on
the nature of expenditure. With regard to Union Territories without
Legislature, a separate Demand is presented for each of such Union
Territories.
3. Finance Bill is laid as a money bill for taxation under Article 110 of the
Constitution.
KEY TERMS

 Revenue The part of the budget which deals with the income and
Budget expenditure of revenue by the government.
 Revenue Revenue receipts of a government comprise tax revenue
Receipts receipts and non-tax revenue receipts.
Revenue expenditure is for the normal running of
 Revenue Government departments and various services, interest
Disbursement/ payments on debt, subsidies, etc. Broadly, the
Expenditure expenditure which does not result in creation of assets for
Government of India is treated as revenue expenditure.
 Capital
It consists of capital receipts and capital payments.
Budget
The capital receipts are loans raised by Government from
public, called market loans, borrowings by Government
from Reserve Bank and other parties through sale of
 Capital
Treasury Bills, loans received from foreign Governments
Receipts
and bodies, disinvestment receipts and recoveries of
loans from State and Union Territory Governments and
other parties.
 Capital payments consist of expenditure on acquisition
of assets like land, buildings, machinery, equipment, as
 Capital
also investments in shares, etc., and loans and advances
Disbursement/
granted by Central Government to State and Union
Expenditure
Territory Governments, Government companies,
Corporations and other parties.
Estimates of receipts included in the Annual Financial
Statement are further analysed in the document "Receipts
 Receipts
Budget". The document provides details of tax and non-
Budget
tax revenue receipts and capital receipts and explains the
estimates.
The provisions made for a scheme or a programme may
be spread over a number of Major Heads in the Revenue
 Expenditure and Capital sections in a Demand for Grants. In the
Budget Expenditure Budget, the estimates made for a
scheme/programme are brought together and shown on a
net basis on Revenue and Capital basis at one place.

DEFICITS

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. Generally
fiscal deficit takes place either due to revenue deficit or a
 Fiscal Deficit
major hike in capital expenditure. It is usually financed
through borrowing from either the central bank of the
country or raising money from capital markets by issuing
different instruments like treasury bills and bonds.
 The excess of expenses over receipts on revenue account
 Revenue
is called revenue deficit. Revenue deficit = Revenue
Deficit
Expense - Revenue Receipts.
 Primary
Fiscal Deficit less interest payments.
Deficit
 Effective
It is the difference between revenue deficits and the grants
Revenue
for creation of capital assets.
Deficit

TYPES OF FISCAL POLICIES

Fiscal
policy Recession Expansion
Outcome
(FP) (GDP) (GDP)
Stance
Contractionary Expansionary Deepens recessions
FP FP and amplifies expansions,
Pro-
↓ Govt. ↑ Govt. thereby increasing
cyclical
Expenditure or Expenditure fluctuations in the business
/and ↑ Taxes or/and ↓ Taxes cycle.
Expansionary Contractionary
Softens the recession and
FP FP
moderates the expansions,
Counter- ↑ Govt. ↓ Govt.
thereby decreasing
cyclical Expenditure Expenditure
fluctuations in the business
or/and or /and
cycle.
↓ Taxes ↑ Taxes

FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT ACT,

2003
OBJECTIVES OF FRBM ACT
1. Ensuring Inter-generational equity in fiscal management
2. Long term macro-economic stability by removing fiscal impediments in
the effective conduct of monetary policy
3. Prudential debt management consistent with fiscal sustainability through
limit on Central Government borrowings, debt and deficits
4. Greater transparency in fiscal operations of the Central Government
5. Conducting fiscal policy in a medium-term framework
DOCUMENTS TO BE LAID DOWN BY CENTRAL GOVERNMENT
UNDER THE ACT
1. Medium term Fiscal Policy Statement: Laid along with budget. It sets
three-year rolling targets for prescribed fiscal indicators.
2. Fiscal Policy Strategy Statement: Laid along with budget. Contains
policies of Central government on taxation, borrowing, expenditure, pricing
of administered goods etc, strategic priorities of Central Government for the
ensuing financial year, key fiscal measures and rationale for any major
deviation in fiscal measures and an evaluation of current policies of Central
Government in line with fiscal management principles.
3. Macro-economic Framework Statement: Laid along with budget.
Contains assessment of growth prospects, fiscal balance and external sector
balance of the economy with underlying assumptions.
4. Medium-term Expenditure Framework Statement: Laid in the next
session of the session in which budget is presented. It sets forth a three-year
rolling target for prescribed expenditure indicators. It shall also highlight
expenditure commitment of major policy changes in new schemes and
programs and explicit contingent liabilities.
FISCAL MANAGEMENT PRINCIPLES FOR CENTRAL
GOVERNMENT
1. Fiscal Deficit based target: Central Government's limit fiscal deficit to
be less than 3% of GDP.
2. Debt based target: Central government will ensure that:
a. General government debt does not exceed 60% of GDP by 2024-
25. (General government debt refers to collective debt of all states along
with Central Government).
 b. Central Government debt does not exceed 40% of GDP by 2024-
25.
3. Central government to not give additional guarantees to any loan of
Consolidated Fund of India in excess of 0.5% of GDP.
ESCAPE CLAUSE
N K Singh Committee in its review of FRBM Act suggested changes in the act
to make it effective tool for counter-cyclical economic policy which means that
when economic growth is strong deficits of governments should be reduced or
even surplus can be generated. However, in case of an economic downturn
government should take leadership and spend to lift all boats.
Under the FRBM act, the Central Government shall prescribe the annual targets
for reduction of fiscal deficit for the period.
Conditions during which fiscal deficit targets can be breached ie fiscal
deficit higher than targeted.
1. Grounds of national security
2. Act of war
3. National calamity
4. Collapse of agriculture severely affecting farm output and incomes.
5. Structural reforms in the economy with unanticipated fiscal implications
6. Decline in real output growth of a quarter by at least three percent point
below its average of previous four quarters.
In these situations, fiscal deficit can exceed by 0.5% of GDP of the target
prescribed.
Conditions when fiscal deficit can be reduced than targeted: Increase in
real output growth by at least 3% point above its average of the previous 4
quarters. In this situation, fiscal deficit can be reduced by 0.5% over what is
targeted.
BORROWING FROM RESERVE BANK
1. Central Government to not borrow from RBI.
2. Central Government can borrow from RBI for temporary mismatches in
cash balance. (Ways and Means Mechanism)
3. An amendment was done in the FRBM Act, which allowed RBI to
subscribe to primary issue of Central Government securities when one of the
conditions for invoking escape clause for increasing fiscal deficit is present
ie Centre can borrow from RBI in the following cases:
 Grounds of national security
 Act of war
 National calamity
 Collapse of agriculture severely affecting farm output and incomes.
 Structural reforms in the economy with unanticipated fiscal implications
 Decline in real output growth of a quarter by at least three percent point below
its average of previous four quarters.
4. RBI can buy and sell Central Government securities from the secondary
market or convert converts Central Government Securities held by it with
other Securities of the Central Government as mutually agreed between the
Reserve Bank and the Central Government.
MEASURES FOR ENFORCEMENT
 Central government to ensure greater transparency in its fiscal operations and
minimise secrecy in preparation of annual financial statements and demands
for grants.
 Union Minister of Finance to review targets and trends in receipts and
expenditure in relation to targets in budget on half-yearly basis.
 Central Government to prepare monthly statements of its accounts.
 In case of shortage in revenue or excess of expenditure, Central Government
to take steps to increase revenue or reduce expenditure. (Nothing in this shall
effect revenue charged on the Consolidated fund).
 No deviation is allowed from the target cast on the Central Government
except without approval of Parliament. However, if due to any unforeseen
event a deviation occurs, Union Minister of Finance will make a statement in
both houses of Parliament highlight reasons, outcomes and remedial
measures.
 CAG to periodically review compliance of this Act by Central Government
and table report in Parliament.
LIMITS ON FISCAL DEFICIT- A CONSTRAINT ON BOOSTING
ECONOMIC GROWTH?
The FRBM Act, 2003 requires the Government to maintain FD target of 3% to
ensure fiscal discipline. However, during exceptional times such as Covid-19,
such reasonable targets can force the government to adopt pro-cyclical fiscal
policy and hence prolong economic revival.
As seen below, reasonable restriction on FD is extremely critical to promote
higher Tax-GDP ratio, rationalization of expenditure, ensure inter-generational
equity and fiscal discipline and hence higher GDP growth rate.
However, during abnormal times such as Covid-19, the Government needs to
adopt counter cyclical fiscal policy and hence such restrictions on FD can
hinder economic revival. Thus, even though, increase in Fiscal deficit can have
long term adverse consequences, the current economic scenario requires us to
deviate from FD targets on account of following reasons:
Unprecedented Times: The Covid-19 has led to twin shocks leading to a
record GDP contraction of -7.5% in 2020-21. Deviation of 0.5% in FD which
is allowed under FRBM act is not sufficient. Unprecedented times call for
unprecedented measures.
Sticking to FD Limit- Counter-Productive: Sticking to FD Limit  Cutting
down on Expenditure and Increasing the tax rates  Decline in Investment and
Consumption expenditure  Decline in Employment  Decline in GDP
growth rates and Income levels (Pro-cyclical Fiscal Policy)
Key to Economic Revival: Both Investment and Consumption expenditure
affected and unlikely to increase due to economic uncertainty. Hence, need for
increasing Government expenditure (GFCE).
Increase in GFCE  Creation of Infrastructure  Crowd-in Private sector
Investment  Boost Demand in the economy  Address Twin Shocks 
Boost GDP growth rate.
HIGHER FD- NOT A MATTER OF CONCERN
 Lower absolute debt

 Negative IRGD- Higher Debt Sustainability

 Long term maturity profile of India’s Debt

 Adequacy of forex Reserves

 Downgrade in Sovereign Credit Ratings--> Minimal impact on India’s GDP

growth rate
Hence, as rightly pointed out by Economic Survey 2020-21, the Government
need not be worried out higher FD to provide fiscal stimulus to deal with
present economic scenario. However, at the same time, there is a need to ensure
higher quality of Fiscal deficit by increasing the share of Capital expenditure
and reducing share of revenue expenditure. Necessary amendments would have
to be introduced in the FRBM Act, 2003.
CAN CAPITAL EXPENDITURE BOOST ECONOMY?
To deal with Economic slowdown, the Union Budget 2021-22 has substantially
enhanced the Capital Expenditure to ensure multiplier effect, boost both
demand and supply, crowd-in private sector investment, revive the animal
spirits and kickstart Indian economy. However, it is easier said than done. The
ability of capital expenditure to boost long-term growth is saddled with multi-
faceted challenges.
Trends in Revenue and Capital Expenditure in India: The share of revenue
expenditure in the total expenditure has increased from 73% in 1990 to 84% in
2021. However, the share of Capital Expenditure has reduced from 27% in
1990 to 12% in 2019-20. Similarly, a higher share of our borrowings (Fiscal
Deficit) is used for funding Revenue Expenditure rather than Capital
Expenditure. This shows a consistent decline in the quality of Fiscal Deficit in
India.
CASE FOR INCREASE IN CAPITAL EXPENDITURE
Revive Economy: In India, the capital expenditure multiplier is around 2.45,
while the revenue expenditure multiplier is 0.99 (RBI Bulletin, Dec 2020).
Thus, for a Rs. 1 crore increase in capital expenditure, GDP increases by Rs.
2.45 crores, whereas if there is a 1 crore increase in revenue expenditure, the
GDP increases only by Rs.0.99 crore.
Crowd-in Private sector Investment as the Government expenditure on
creation of capital assets would boost demand for Goods and services produced
by the Private sector entities.
Shift gears from Consumption driven to Investment driven economy as
recommended by Eco Survey 2019-20
Higher Debt Sustainability: The Economic Survey 2020-21 has highlighted
that India need not be worried about Quantity of Public Debt, rather we should
be worried about our capacity to repay. Our capacity to repay in turn depends
upon Interest rate growth differential (IRGD.
Plug gaps in Infrastructure: India needs to spend $4.5 trillion on
infrastructure by 2030 to sustain its growth rate. Higher Capital expenditure
would lead to creation of world class infrastructure in terms of Roads, railways,
ports etc.
Reduce Logistics cost and boost Make in India: Higher Capital expenditure
would help us bring down the logistics cost from around 12%-14% of the GDP
to the global benchmark of around 8-10% of GDP.
Boost Employment Creation: Higher Capital expenditure would create more
employment opportunities, enable people to earn their livelihoods and boost
demand in the economy.
Concerns and challenges
Neglect of Immediate needs of the people: According to some of the
economists, instead of providing benefits to the people in the form of cash
transfers, free ration, Education, healthcare etc. to deal with Covid-19
pandemic, Government ends up giving more emphasis on creation of capital
assets.
Problem of Time lag as the increase in the capital expenditure would not have
immediate impact on the economy.
Multiplier effect may not be come into being as the private sector may not
increase its investment due to fear to lower GDP growth rates and lower rate
of returns. Similarly, due to unforeseen circumstances prevailing in the
economy, people may decide to save money instead of spending leading to
decline in demand.
Crowd out Private sector investment due to higher government borrowings.
Time and cost over runs in completing infrastructure projects could lead to
lower rate of returns and hence make the projects financially unviable.
Poor quality of asset creation can lead to higher recurring expenditure on
maintenance.
WAY FORWARD
The Budget 2021-22 has rightly prioritised on Capital Expenditure. However,
the Government must address some of the constraints such as time and cost
overruns, improving Ease of Doing Business etc. At the same time, new
initiatives such as Development Banks and National Monetisation Pipeline
must be implemented in the right earnest. The government should also aim to
cut down on inefficient revenue expenditure and focus on creating a balanced
and stable virtuous cycle, which can have positive knock-on effects over the
long term.

DEBT POSITION OF THE GOVERNMENT

The Debt position of the central Government can be analyzed by looking at the
total liabilities of the Central Government. The Total liabilities of the Central
Government include debt contracted against the Consolidated Fund of India,
technically defined as Public Debt, as well as liabilities in the Public Account.
Debt Status of the Central Government
Treasury Bills
Cash Management Bills
Public Debt Internal Ways and Means Advances
120 lakh crores Debt Dated Securities (30% of
Total Liabilities (51.5% of GDP) 115 lakh GDP)
of Government crores Special G-Secs-
135 Lakh crores (49.5% of Recapitalization Bonds,
GDP) Sovereign Gold Bonds
(59% of GDP)
Securities against NSSF
External Loans from Multilateral
Debt Institutions (70% of
5 lakh External Debt)
crores Bilateral Debt (30% of
(2% of External Debt)
GDP)
National Small Savings Fund
State Provident Fund
 Liabilities under Other deposits under Public Account of
Public Account of India
India
15 lakh crores
(8% of GDP)

The Total liabilities of the central Government as on 2021-22 stands at 135

lakh crores (59% of India's GDP). The liabilities are categorized under two
heads- Public Debt and Liabilities under Public Account of India. Depending
upon the source of Government's borrowings, the Public Debt is categorized
into Internal and External Debt.
Some of the major sources of Internal Debt are:
 Treasury Bills: Instruments to raise short-term loans
 Dated Securities: Used for raising long term loans
 Ways and means advances (WMA): Borrowings from the RBI to meet
immediate cash requirements which can arise due to temporary mismatches
in receipts and expenditure.
 Sovereign Gold Bonds: Government securities denominated in terms of
Gold.
 Bank Recapitalization Bonds: Bonds issued by the Government to raise
loans for undertaking recapitalization of Public Sector Banks (PSBs)
 Securities issued against NSSF: The money collected under various small
savings schemes such as Post office Deposits, National Savings Certificate,
PPF etc. is deposited under National Small Savings Fund (NSSF) which is
maintained as part of Public Account of India. Certain percentage of funds
under the NSSF is used to investment in special G-Secs and hence considered
to be Government's borrowings.
 Important Note: Presently, major part of Internal debt is dominated by
market borrowings i.e. Treasury Bills and Dated Securities. It is followed by
Securities issued against NSSF.

►TRENDS IN CENTRE'S DEBT-TO-GDP RATIO

Targets under the FRBM act
 Reduce Fiscal Deficit to 3% of GDP by end of 2021.
 Reduce General Government debt to below 60% by end of 2024-25. ( Central
Government: Below 40%; State Governments: Below 20%).
Figure 21: Trends in General Government Debt and Deficits (as a per cent
of GDP)

Figure 20: Major deficit and debt indicators of States

Figure 18: Trend in Centre’s Debt-GDP ratio

As shown in above figure, the overall debt of the centre was around 45% in
2018-19. By end of 2020-21, the debt has increased to 59% of India's GDP.
The overall GDP-GSDP ratio of the states has increased from 25% in 2018-19
3 to 31% in 2020-21.

CONCERNS WITH OFF-BUDGET FINANCING

The Off-Budget Financing refers to the expenditure undertaken by the PSUs
through the market borrowings based upon guarantee of repayment of loans
given by Government. For example, let's say the government needs to invest in
the Railways. It may ask the Indian Railway Finance Corporation (IRFC) to
borrow money from the market and finance railway projects. However, the
Government guarantees the repayment of principal and interest for the money
borrowed by Indian Railway Finance Corporation in case it fails to repay the
borrowed money.
CONCERNS WITH OFF-BUDGET FINANCING
According to various Estimates put forward by Subhash Chandra Garg, the
Off-budget Expenditure accounts for at least 1% of India's GDP, which appears
to be quite huge. The same concern was raised even by Comptroller and
Auditor General (CAG) in March 2019.
Decrease in Government's Financial Accountability: The Government’s
strategy to meet capital expenditure through off-budget financing provides
flexibility in meeting requirement of capital-intensive projects. However, such
financing remains outside budgetary control of the Parliament.
Decrease in Fiscal discipline: The increase in the off-budget expenditure
highlights that the Government has not been able to manage its finances
efficiently and thus there is greater level of fiscal indiscipline.
Enhanced Financial Risk: The increase in off-budget financing poses
enhanced risk for the Government, particularly when the Government agencies
which borrow money from market based on government guarantee fails to
repay such loans. Under such circumstances, the Government would be
required to pitch in and fulfill its obligations.
Reduced Sanctity of Government's Finances: Ideally, the Government
guarantee on repayment of bonds should be accounted under Debt and
Liabilities so as to provide correct picture about its finances. However, since it
is not accounted, it would lead to understating of Government's borrowings
and do not present correct picture related to fiscal indicators such as Fiscal
Deficit and Revenue Deficit.
HOW TO ADDRESS THIS PROBLEM?
The office of CAG has given a number of recommendations to tackle the
problem of off-budget financing. Some of these recommendations include:
 The Government of India must put in place policy framework for off-budget

financing in order to provide for enhanced disclosure to the Indian

parliament. Such a policy framework must mandate the Government to
highlight the rationale and objective of undertaking off-budget financing.
 The Government must come out with the quantum of off-budget financing

and the way it has been undertaken every year.

 The Government must disclose all the details about the off-budget financing

through the disclosure statements in the Budget.