OFF
BUDGET BORROWINGS - ECONOMY
News:
Government starts
exercise to understand the quantum and impact of off-budget borrowings
What's
in the news?
●
The State government has started the
exercise to understand the quantum of off-budget borrowings availed of by the
previous BRS government.
Off
Budget Borrowings:
● They
are loans obtained by government
entities, such as PSUs or special purpose vehicles, on behalf of the government
to finance its expenditure.
● According
to the Comptroller and Auditor General of India, these borrowings are not
included while computing the debt and the fiscal deficit of the State
governments. This helps keep the country’s fiscal deficit within acceptable
limits.
● However,
the State government is responsible for repaying the loan and servicing the
debt from its Budget.
● As
extra-budgetary borrowings find no mention in the Budget documents, one has to
rely on the CAG reports to ascertain the figures.
Implications
of Off-Budget Liabilities:
1.
Rising Debt to GDP Ratio:
● Pushing
the government's debt-to-GDP to a 15-year high of about 61.6% in FY21.
2.
Bypassing Financial Accountability:
● Hindering
the government's efforts to achieve financial transparency and accountability.
3.
Deprivation of Funds to Non-Priority Areas:
● Diverting
funds from priority sectors such as health, education, and infrastructure
development to finance other government programs and subsidies.
4.
Rise of NPA:
● Contributing
to the accumulation of non-performing assets in state-run agencies.
5.
Crowding-out Effect:
● Depriving
funds for the private sector leads to a crowding out problem.
6.
Rising interest rate:
●
Due to high demand of Debt lead to rise of
interest rates.