It used to raise off-budget loans through public sector entities to fund welfare expenditure. These liabilities were around Rs 3.7 trillion at the beginning of FY21, until the government cleared food and fertiliser subsidies worth `3.15 trillion by end-FY21.
The Centre extinguished its off-budget liabilities completely by the end of last fiscal year, in keeping with its plan to usher in total fiscal transparency.
It used to raise off-budget loans through public sector entities to fund welfare expenditure. These liabilities were around Rs 3.7 trillion at the beginning of FY21, until the government cleared food and fertiliser subsidies worth Rs 3.15 trillion by end-FY21.
Off-budget liabilities were less than Rs 50,000 crore as on February 1, 2022 and even these were cleared by March 31, as revenues exceeded the revised estimate for FY22, sources said.
In FY22, most of the off-budget settlement pertained to the ministry of housing & urban affairs at about Rs 30,000 crore, the department of drinking water at about Rs 15,000 crore and the power ministry at around Rs 4,500 crore.
“The fiscal policy framework predictability is going to improve very significantly by removing these off-budget liabilities. The Centre is setting a great example for many states, which over a period of time were seen increasing off-budget liabilities,” said said NR Bhanumurthy, vice-chancellor of Bengaluru Dr BR Ambedkar School of Economics University.
The move to improve its own fiscal transparency gave the Centre the moral authority to clamp down off-budget liabilities being accumulated by many states.
In a directive to states on March 31, 2022, the Centre had said their entire off-budget liabilities of FY21 and FY22 will be adjusted against the net base borrowing ceiling (NBC) for FY23. If implemented, this policy would have severely restricted the plans of some states like Telangana, Punjab and Kerala to raise funds through state development loans (SDLs) in the current financial year and thereby their capital expenditures. The Centre’s stance has already led to some delay in approvals of annual SDL limits of states, which are usually in place in April in any financial year.
In view of the difficulties faced by states, the Centre later decided to lift a virtual freeze on fresh market borrowings by states with large off-budget liabilities. It will, however, strike off at least 25 basis points (bps) from the NBC of 3.5% of gross state domestic product (GSDP) of these states in FY23.
The off-budget liabilities will be counted only from FY22 onwards. The balance debt, so estimated, will be brought above the line over the three years to FY26 in equal tranches.