FRBM audit shows FY16 fiscal deficit possibly understated

The Comptroller and Auditor General of India (CAG) has highlighted several flaws in the Union government’s accounting procedures for the financial year 2015-16, which could have led to an understatement of the fiscal deficit and revenue deficit for that year.

The CAG Audit Report on the government’s compliance of the rules and targets set by the Fiscal Responsibility and Budget Management (FRBM) Act 2003 also highlighted the fact that the government had deferred payments amounting to more than ₹1.87 lakh crore in 2015-16, which would have also had an impact on its fiscal and revenue deficits for that year.

“As a result of deficiency in estimating the expenditure on grants for creation of capital assets, the provision included in the Budget at a Glance for grants for creation of capital assets was underestimated by ₹18,827 crore, which has also impacted the correct estimation of effective revenue deficit,” the CAG said.

Further, the report added that due to the misclassification of revenue expenditure as capital expenditure and vice versa, the revenue deficit was understated by ₹1,583 crore during financial year 2015-16. In addition to this, ₹20,911 crore collected under levies and cesses were not transferred to the relevant funds, which led to an “understatement of revenue/fiscal deficit by an equivalent amount” during 2015-16.

The report also found that, at the end of 2015-16, subsidy claims of ₹1,62,530 crore relating to fertiliser, food, and petroleum were pending, and that the devolution of taxes to the States was short by ₹24,942 crore that year, which had a bearing on the computation of the deficit ratios for that year. “Though the accounts of the government are prepared on cash basis, yet the deferment of liabilities to subsequent year cyclically has a bearing on computation of fiscal indicators,” the CAG noted.

“The practice of deferring committed liability on the ground that accounts are prepared on cash basis, while serving as an instrument to contain the current level of deficit, may not ensure inter-generational equity in fiscal management as envisaged in the [FRBM] Act.”

Budgetary variances

The CAG also noted that there were several issues with the transparency of the government’s account statements.

“Refunds of ₹1,29,482 crore were made from gross direct tax collections in FY2015-16 but no corresponding disclosure was available in the government accounts,” the report said.

It added that variations were noticed in the deficit figures depicted in the Budget at a Glance and the Annual Financial Statements of the Union government, and that similar variations were noticed in the disclosure of actual expenditure on grants for the creation of capital assets, and in the liability position of the government.

The CAG pointed out that the government had failed to meet the FRBM targets for 2015-16 on both the fiscal deficit and the revenue deficit, and that it had subsequently changed the targets and deadlines without making the relevant changes in the Act itself.

“During 2015-16, in respect of all the three deficit indicators, viz. effective revenue deficit, revenue deficit and fiscal deficit, the annual reduction targets were not in accordance with the provisions of the FRBM Act/Rules,” the report said.