Insulate fisc against credibility deficit

Insulate fisc against credibility deficit

Turn methodology of fiscal estimates fool proof.

In a wide-ranging interview, finance minister Nirmala Sitharaman told ET that the government is seriously looking into the Comptroller and Auditor General’s (CAG) observations on infirmities in the estimation of the fiscal deficit, chiefly on account of extra-budgetary resources. The government must bring accounting rigour and transparency to government finances without delay. It would make sense for New Delhi to take the initiative in this regard rather than wait for international rating agencies to raise questions about the veracity of India’s official figures as part of the due diligence exercises that would accompany India’s proposed sovereign bond issue in foreign currencies. Uncertain fiscal numbers would induce bouts of the nerves among bond traders, as well.

The Comptroller and Auditor General of India has pointed out, in a presentation it made to the 15th Finance Commission, that the central government’s fiscal deficit for 2017-18 was 5.85% of GDP, and not 3.46% of GDP as estimated in the Budget, as per a report in this newspaper. The CAG’s estimate was higher because it identified certain off-Budget borrowings made by entities such as the National Highways Authority, the Indian Railway Finance Corporation and the Power Finance Corporation to finance budgetary spends but not acknowledged as government borrowings. Former deputy governor of the Reserve Bank of India put the total public sector borrowing requirement, including borrowings by the Centre, states and other public sector undertakings, at 8-9% of GDP. In fact, the figure could be higher. Deferred payments to agencies such as the Food Corporation of India and fertiliser suppliers, and deferred income-tax refunds, etc, add to the uncertainty. The matter was flagged by the government’s own Medium Term Fiscal Policy Statement cum Fiscal Policy Strategy Statement.

How worrisome the fiscal deficit is depends not just on its relative size but also on how strong private sector demand for credit is. But that does not gainsay the need to have completely credible fiscal deficit numbers.