Fiscal Deficit represents net borrowings by the government in a year. Difference between the debt and liabilities at the beginning and at the end of a financial year also represents net borrowings during the year. Fiscal deficit should therefore equal change in the debt and liabilities during the financial year. All government expenditure, revenues and debts are required to be carried out through the Consolidated Fund of India (CFI). If it is done so, the fiscal deficit of the government should equal to the additional debt incurred during the year, all recorded in the CFI.
Unfortunately, all these transactions are not recorded through the CFI all the time. Some debt/liabilities are not assumed outside the CFI- either in the Public Account or totally outside the formal accounting system of the government i.e. outside CFI and Public Account. Some liabilities related transactions are recorded by deducting a corresponding debt receipt from the expenditure/ investment made. Such transactions are described popularly as Below the Line, Off Budget etc. Equity infusion in the Public Sector Banks, during the last few years, has been done by deducting debt received by the Government of India from the PSBs from the equity investments made. As a result, there is no impact of such expenditure/investment on fiscal deficit but the debt and liabilities stock of the government goes up. During 2004-09, Bonds were issued to oil companies and fertiliser companies and accounted for in the Public Account (instead of CFI) to pay off oil/fertiliser cost under-recoveries. These transactions also had a similar impact - fiscal deficit was not affected but debt/liabilities went up. For some years now, the Government of India is issuing what is described in the budget papers as Fully Serviced Bonds (FSBs). These bonds are raised outside the CFI and Public Account and used from special purpose vehicles outside budget/ accounts to pay off the government expenditure/ subsidy. Interest and principals of these liabilities are serviced by the government at the time of payment. These bonds don’t enter into calculations of either fiscal deficit or the debt and liabilities of the Government. Finally, the government has been paying off food subsidy liability by providing cash from the National Small Savings Fund (NSSF). Such transactions have the effect of reducing fiscal deficit and not showing up in the Debt and Liabilities of the government.
The fiscal deficit, stated in the budget papers, is exclusive of these four types of variations. Let us describe the fiscal deficit so calculated and stated as the headline fiscal deficit. Real fiscal deficit, in such a case, would be headline fiscal deficit plus the four types of liabilities described above.
Actual fiscal deficit in 2017-18
Actual numbers of fiscal transactions are available only up to the year 2017-18. The actual state of fiscal deficit during 2017-18 is summarised:
Fiscal Deficit of the Government of India, reported as actuals, in the Government of India Budget Documents was Rs 591062 crore in the Financial Year 2017-18. This is 3.46 or 3.5 percent of the nominal GDP of Rs 170.95 lakh crore. This is the headline fiscal deficit of 2017-18.
We have to add the following to this fiscal deficit number:
Rs 80000 crore of investment was made in the equity of public sector banks (PSBs), deducting from this investment the receipt of Rs. 80000 crore from the very PSBs by way of their investment in the special securities issued by the Government of India.
Rs. 65000 crore of food subsidies were not paid. Instead, FCI was given cash of Rs 65000 crore as loan from National Small Savings Fund (NSSF).
Rs. 3105 crore of Fully Serviced Bonds (FSBs) were issued to pay for the cost of irrigation projects under the Ministry of Water Resources, River Development and Ganga Rejuvenation. Rs. 4000 crore were allowed to be raised by the agencies under the Ministry of Power for paying grant portion under Deen Dayal Gram Jyoti and Saubhagya schemes. Rs 7,330 crore of subvention support under the Pradhan Mantri Awas Yojana implemented by the Department of Rural Development were also paid through the FSBs. FSBs of an amount of Rs 660 crore was allowed to be raised for covering similar liabilities of Inland Waterways Authority of India (IWAI) under the Ministry of Shipping. In all, FSBs of a total amount of Rs 15095 crore were issued to cover the real revenue and capital expenditure obligations of the Government of India.
These three expenditures together made up for Rs 160,095 crore or .94 percent of the GDP of 2017-18. Adding these expenditures to the headline fiscal deficit of Rs 591062 crore, takes the actual Fiscal Deficit for the year 2017-18 to Rs 751157 crore, which was 4.39 percent of the nominal GDP.
Fiscal deficit in 2018-19
Actual accounts for the year 2018-19 are still not published. However, the Controller General of Accounts (CGA) has published provisional accounts for the year 2018-19.
Headline fiscal deficit of FY 2018-19 as per the provisional accounts released by CGA is Rs 645367 crore. Thus, the headline fiscal deficit was 3.39 percent or 3.4 percent of the GDP of Rs 190.10 lakh crore in line with the RE of 2018-19 in the budget papers of 2019-20.Following three types of expenditures should be added to this headline fiscal deficit for the year 2018-19, like in case of 2017-18, i.e. equity investments in PSBs and EXIM Bank made during the year 2018-19, food subsidy expenditure met in cash loans from the NSSF and revenue and capital expenditure under various programme by issuing fully service bonds.
The government provided a total of Rs 1.06 lakh crore by way of “recapitalisation bonds” to public sector banks, including Exim Bank. Further, Rs. 70000 crore was provided from the NSSF to FCI to cover the food subsidy expenditure. Issuances of FSBs ballooned during the year 2018-19 with total amount of FSBs issued amounting to Rs. 64192.10. Expenditure under all these three heads amounted to Rs. 240192 crore.
Thus, actual fiscal deficit in 2018-19 was Rs 885,559 crore or 4.66 percent of GDP of Rs 190.10 lakh crore for the year.
Fiscal deficit in 2019-20
Fiscal performance in 2019-20 has been quite weak. Nominal GDP growth itself has fallen to 7.5 percent (as per first advance estimates released by CSO). Compared with the provisional/actual tax revenues of the Centre for 2018-19, the estimated tax revenues for FY 2019-20 at Rs. 16.50 lakh crore (7.82% of projected GDP FY 2019-20) are Rs. 3.33 lakh crore higher (projected growth of 25.26%). Actual tax performance has been quite poor. In this, major policy decision of the Government to reduce corporate tax rates (desirable as it was considering very high corporate tax rates in the country), has also contributed. Personal income taxes are also growing at very small rate. GST revenues are also not very robust. There is substantial shortfall visible in excise duties and customs duties, which had a very high asking rate this year. There is every likelihood that there would be shortfall of Rs. 2 lakh crore, plus/minus 25000 crore, in the tax revenues this fiscal.
Non-tax revenues are doing quite well this year thanks to hefty transfer from the RBI. There is also a good likelihood that a part of licence fee and spectrum charges arrears linked to the definition of adjusted gross revenue (AGR) accepted by the Supreme Court would flow in this financial year, which might neutralize the impact of deferred spectrum fee due for the year. Dividend from public sector companies, including some dividend from banks this year, especially from the SBI, should turn out to be closer to the budgetary targets. Therefore, it would be reasonable to expect an additional revenue of Rs 50,000 (plus/minus Rs 10,000 crore) under non-tax revenues.
The government initiated its biggest reform by announcing strategic sell-off of BPCL, Shipping Corporation of India and Container Corporation of India. Achievement of disinvestment target of Rs 1.05 lakh crore is not achieved even 20 percent by now. These three disinvestments, at about Rs 80,000 crore or so, were the biggest hope for achieving the disinvestment target. However, it seems the process is moving slower than planned and it is unlikely that sale of all the three, especially BPCL, which was set to provide about 3/4th of this Rs 80,000 crore, would be completed by March 31, 2020. Therefore, there is likelihood of disinvestment target being missed by about Rs 50,000 crore this year.
Taking all this together, there is likely a shortfall of Rs 2 lakh crore to Rs 2.5 lakh crore on revenue side in fiscal 2019-20.
The government has recently directed limiting expenditure to 25 percent of the budgeted amount in the last quarter of the current fiscal. Considering the nature of government expenditure (50 percent is establishment and interest payments) and a 65.3 percent of expenditure has already been incurred until November 2019, there is virtually no likelihood that the government would be able to save anything from the budgeted expenditure of 2019-20. The adjustment of food subsidy (payment from NSSF) may likely be resorted to this year also.
Taking all these on board, it would be fair to expect the headline fiscal deficit to go up by Rs 130,000 crore to Rs 200,000 crore i.e. .6 percent to 1 percent of GDP. The headline fiscal deficit number, therefore, is likely to be between 3.7 percent and 4 percent of GDP.
Like earlier years, three broad heads of expenditure - recapitalisation of banks and other financial institutions like IIFCL and Exim Bank, payment of food subsidy via NSSF and expenditure/ investment funded through FSBs, are likely to be between Rs.175,000 and Rs 225,000 crore this fiscal. Real fiscal deficit is, therefore, likely to be around 4.5 percent to 5 percent of GDP.
Debt and liabilities
Where do you get the information on the government’s debt and liabilities?
The best source to get a good sense of the central government’s debt and liabilities is the Status Paper on Government Debt published annually by the Department of Economic Affairs, Ministry of Finance. The Status Paper on Government Debt for 2017-2018 was published by the Ministry of Finance in January 2018. This publication for 2018-19 is not yet published. DEA also brings out a quarterly publication- Public Debt Management- which primarily deals with the issuance, trends and issues connected with the ‘market borrowing’ of the Government of India. The publication for July- September 2019-20 has been published in December 2019.
The government also publishes a Statement of Liabilities of the Central Government. This is on page 48 of the Receipt Budget 2019-20.
Reconciling these two sets of numbers
Final numbers are available for only 2017-18. The reconciliation, therefore, has been carried out for 2017-18.
Budgetary Statement states the total Debt and Liabilities of the government at Rs 82.35 lakh crore at the end of 2017-18. This Statement carries a Note to state that liabilities of “Govt. fully serviced bonds” is in addition.
The Status Paper on Government Debt, however, reports that actual Debt and Liabilities of the central government was at Rs 77.99 lakh crore at the end of 2017-18. There is thus a difference of Rs 4.36 lakh crore between the two numbers.
The difference is primarily on account of treatment of two items -
a. external debt and b. investment by NSSF into the state government securities. Status Paper takes into account current value (Rs. 4.83 lakh crore) of the external debt whereas budgetary statement takes external debt of the government at historical exchange values (Rs 2.50 lakh crore). This explains the difference of Rs 2.33 lakh crore. The second difference is on account of differential treatment of two elements of investments made from the NSSF. Status Paper on Government Debt excludes two items- Investment of NSSF in the Securities issued by the State Governments and NSSF’s loan to Public agencies. These two items make the Central Government Debt and Liabilities shorter by Rs 6.69 lakh crore. The combined effect of these two items is Rs 4.36 lakh crore.
Treatment of liabilities in the Status Paper is correct and therefore the Debt and Liabilities as stated in the Status Paper at Rs 77.99 lakh crore at the end of 2017-18 or 45.62 percent should be taken as representing true debt and liabilities position of the government.
There are however a few missing debt and liabilities from the Status Paper.
As in the case of fiscal deficit, some of the liabilities of the Government of India have not been included in the Status Paper.
Fully Service Bonds (FSBs): The Government of India had issued FSBs of Rs 9,167 crore in 2016-17 and Rs 15,095 crore in the year 2017-18. These represent real liabilities of the Government of India. Thus, the off-budget liability towards FSBs of Rs 24,262 crore at the end of FY 2017-18 should be included in the Debt and Liabilities of the Government of India for the year 2017-18.
The government incurs liability in the form of annuity for several projects awarded. There are 38 road projects for which outstanding annuity obligations at the end of FY 2017-18 was Rs 45,689 crore. There are some other projects with annuity commitment of Rs 5,050 crore. Thus, total liability obligations towards annuity payments as at the end of FY 2017-18 amounting to Rs 50,739 crore should be included as the Debt and Liabilities of the Government of India at end 2017-18.
Loans from NSSF to Agencies like FCI to provide loan cash against revenue liabilities of the Central Government by reducing food subsidy expenditure should be treated as the liability of the Central Government. FCI had received from NSSF Rs 70,000 crore in 2016-17 and Rs 65,000 crore in 2017-18 to cover deferred payment of food subsidies. Out of this, Rs 14,000 crore was repaid in 2017-18. Rs 1.21 lakh crore was, thus, net outstanding as on March 31, 2018. Likewise, the Building Materials and Technology Corporation (a receptacle of the Ministry of Housing and Urban Affairs had received Rs 8,000 crore to cover PM Awas Yojana subsidies in 2017-18. Thus, liabilities of Rs 1.29 lakh crore represented clear obligations of the Central Government and should be included in the liability of Government of India.
Finally, there is an element of overstatement of the Government of India’s liability in the Status Paper. A good part of the external debt in the Status paper represents loans on-lent to the States by the Government of India. This amount represents the state governments’ liability and is rightly included in their budget and accounts papers as their liability. Including, these again in the GOI papers is nothing but double counting and wrong attribution. Such liabilities are estimated to be Rs 175,000 crore.
The true size of India’s debt and liabilities at end FY 2017-18
Taking into account the four elements described above, the total Debt and Liabilities of the Government of India at the end of FY 2013-14 was Rs 78,27,848 crore. This makes the liabilities, as compared to the Status Paper, higher by Rs 29,000 crore. India’s nominal GDP during 2017-18 was Rs. 17,095,005 crore (as per advance estimates for 2019-20 released by CSO on 7th January 2020). Thus, India’s Debt to GDP ratio at the end of 2017-18 was 45.79 percent.
The debt and liabilities number reported in the Budget Papers (Receipt Budget Part 2 of 2019-20) for 2017-18 was Rs 82,34, 877 crore. This made up 48.17 percent of the GDP. However, this does not represent correct description of Government of India’s Debt and Liabilities, primarily because it treats investment of NSSF in State Governments’ Securities as Government of India’s Liabilities. The correct size of India’s debt and liabilities was Rs 78.28 lakh crore and debt to GDP ratio 45.79 percent.
Size of India’s debt and liabilities in 2018-19
The Status Paper on Government Debt for 2019 is still not published by the Ministry of Finance. Ministry of Finance. The Government provides information about the total debt and liabilities, as per the convention and concepts used in the Status Paper on Government Debt, in the quarterly report on Public Debt Management.
As per the report released for the January-March 2019 quarter by the Ministry of Finance, total Debt and Liabilities of the Government of India at the end of March 2019 was Rs 84,68,086 crore. This exceeded the liabilities at the end of FY 2017-18 by Rs 6,69,238 crore. There seems to be some issue about this number. Special Securities issued by the government to fund equity infusion in the public sector banks (this year EXIM Bank was also included) is always added in the debt and liabilities of the Government of India, both in budget papers and also in the Status Paper. If only the recapitalisation bonds of Rs 1.06 lakh crore are added to the provisional fiscal deficit of Rs 6.45 lakh crore (as reported by CGA), the debt and liabilities should be higher by 7.51 lakh crore. This is at variance with the increase in debt and liabilities as reported in the quarterly report.
We will have to await the release of the Status Paper for 2018-19 to make a final assessment of the actual debt and liabilities of 2018-19. For the present, it would suffice, if we add the three expenditure (as in previous paragraph relating to fiscal deficit) i.e. Rs 2.40 lakh crore to the provisional fiscal deficit of Rs 6.45 lakh crore. Increase in debt then becomes Rs 8.85 lakh crore. Adding this number to the previous year’s debt and liabilities of Rs 78.28 lakh crore, total debt and liabilities provisionally for the year 2018-19 are at Rs 87.13 lakh crore.
Total debt and liabilities of the Government of India, as per our provisional assessment increased from Rs 78.28 lakh crore in 2017-18 to Rs 87.13 lakh crore rising marginally from 45.79 percent of GDP to 45.83 percent of GDP of Rs 190.10 lakh crore.
Subhash Chandra Garg served as Economic Affairs Secretary and Finance Secretary of India.