The Nature and Implications of Off-Budget Borrowings in India: Centre and States

Abstract

India has a long-standing problem with data gaps, which have serious implications for fiscal policy and economic growth. The lack of transparency around off-budget borrowing is a major example of data gaps in India, and has been persistent across the Union and state levels. The paper examines the regulatory framework and institutional gaps surrounding off-budget borrowings in India. It attempts to build a comprehensive understanding on the methods used for such borrowings and ascertains their true extent. The paper relies primarily on data from CAG audits of the Union and state finance accounts. The paper welcomes the Union’s recent actions to make transparent and begin to do away with the use of off-budget borrowings. However, more actions are needed to close this form of data gap, at the Union and the states and, meanwhile, the Union should focus on ensuring the full reporting of these borrowings. This calls for an improvement in the coverage, timeliness, quality and integrity of fiscal reporting, in line with international standards. Eventually, that could be best achieved with a comprehensive and consolidated PFM law for the Union and the states.