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The Comptroller and Auditor General ( CAG ) has said that the central government’s key deficit figures may be considerably higher than those stated in the union budget.In a presentation to the 15th Finance Commission (FFC) on July 8, three days after the July 5 budget, CAG has asked whether the extra-budgetary resources accounted for in the budget reflect the correct picture. To make its point, the auditor re-calculated the fiscal deficit of 2017-18 to show that it actually works out to 5.85%. The government had reported a fiscal deficit of 3.46% that year.India’s deficit numbers have come under sharp scrutiny as the government has been increasingly depending on off-budget borrowings to fund capital expenditure and even revenue expenditure such as food and fertiliser subsidy arrears. However, the reporting is such that the actual extent of the borrowing is unclear even to budget experts.A July 4 government press release after the Economic Survey was tabled in Parliament said the general government (centre and states) has been on the path of fiscal consolidation and fiscal discipline. The combined fiscal deficit of the centre and states had declined from 6.4% in 2017-18 to 5.8% in 2018-19, it said and added that public finances were well aligned to the glide path to achieving fiscal deficit of 3% of GDP by 2020-21.However, that may be tough going by the CAG’s methodology of calculating the deficit. The auditor has also found that the revenue deficit in 2017-18 was actually 3.48% of GDP and not 2.59% as reported.ET has reviewed a copy of the CAG’s presentation. Questionnaires sent to the finance ministry, FFC and CAG on July 15 remain unanswered until now.In a statement describing the meeting released on July 8, the FC said the issue of “fiscal transparency in the fiscal reporting of the Union and state governments was discussed especially in the light of increasing trend of off-budget and extra-budgetary resource raising by the governments”. The release, however, had not given specific numbers. The meeting discussed, among other things, “under-reporting of deficit, debt; potential risks of absence of revenue deficit as a target’’, the release said.CAG estimated off-budget borrowings for revenue expenditure at 0.96% of GDP, and off-budget borrowings for capital expenditure at 1.43% of GDP. Adding these to the budget’s numbers causes a sharp rise in deficit figures for fiscal year 2018.CAG’s calculations are based on including outstanding liabilities of various public sector units that borrow to cover expenditure on government programmes. These include arrears on food and fertilizer subsidies that the government hasn’t paid to PSUs such as the Food Corporation of India.CAG also includes loans provided to beneficiaries of the Pradhan Mantri Ujjwala Yojana (PMUY) in FY18 by oil marketing companies. The auditor counts liabilities of Power Finance Corporation, Indian Railway Finance Corporation, National Highway Authority of India as well as off-budget borrowings for bank recapitalization in its deficit calculations.The government’s fiscal numbers of the past couple of years are currently under intense scrutiny as economic growth has remained sluggish since the third quarter of 2016. Pointing to tax collections, member of the Prime Minister’s Economic Advisory Council and director, National Institute of Public Finance and Policy, Rathin Roy, said India was facing a silent fiscal crisis owing to a shortfall in tax revenues. “At the heart of the crisis is a shortfall in provisional tax revenues for 2018-19. It is mainly due to a shortfall in GST revenues (but also personal income tax revenues), compared to the numbers presented in the revised estimates,” he was quoted as saying.Roy also questioned how the Centre achieved the 3.4 per cent fiscal deficit target for 2018-19. “How is this done given the stunning shortfall in the tax-GDP ratio?” he was quoted as asking.Discussions on the nature and extent of India’s fiscal situation had come up in a mid-May meeting of the advisory council to the FFC. The issue was also discussed at RBI’s monetary policy committee (MPC) meeting in the first week of June.Minutes of the MPC meeting available on RBI’s web site show member Chetan Ghate said, “…fiscal prestidigitation or sleight of hand may contribute to our own version of a doom-loop, i.e., by pushing expenditure off-budget to meet deficit targets and then recourse to borrowing from the national small saving fund by state entities…”.The then deputy governor Viral Acharya, who quit soon after the MPC meeting, said, “…estimates of overall public sector borrowing requirement – which appropriately accounts for extra budgetary resources and other off-balance sheet borrowings of Central and state governments – have now reached between 8%-9% of GDP…”.Differing with these observations, RBI governor Shaktikanta Das had said at that meeting, “…over the last few years, the Central government has by and large followed a policy of fiscal prudence. It has adhered to the fiscal deficit glide path in the last five years, though at a somewhat slower pace than committed earlier”.Das had also argued that public sector borrowing should be “viewed differently” as most borrowings are for “capital expenditure”.