Off-budget borrowings

Subject – Economy

Context – CAG flags Kerala’s off-budget borrowings to pay for welfare scheme

Concept –

Off-budget borrowings are loans that are taken not by the Centre directly, but by another public institution which borrows on the directions of the central government. Such borrowings are used to fulfil the government’s expenditure needs.
But since the liability of the loan is not formally on the Centre, the loan is not included in the national fiscal deficit. This helps keep the country’s fiscal deficit within acceptable limits.
As a result, as a Comptroller and Auditor General report of 2019 points out, this route of financing puts major sources of funds outside the control of Parliament. Such off-budget financing is not part of the calculation of the fiscal indicators despite fiscal implications.
In India, the off-budget financing is also excluded from the Fiscal Responsibility and Budget Management (FRBM) Act, which intends to bring transparency and accountability to the monetary actions of the government.

How are off-budget borrowings raised?

The government can ask an implementing agency to raise the required funds from the market through loans or by issuing bonds.
Other public sector undertakings have also borrows for the government.
Public sector banks are also used to fund off-budget expenses.