What are Off-Budget Borrowings?

January 28, 2021

The Government of India is all set to present the Union Budget 2021 on February 1, 2021. This year, the focus of the budget will be on off-budget borrowings so as to reduce the Fiscal Deficit.

What are off-budget borrowings?

The loans that are taken by any public institution and not by the Centre directly are called as the “Off-Budget Borrowings”. The public institution borrows on the directions of the central government.
These borrowings are used to fulfil the expenditure needs of the government.
Under such borrowing norms, Centre use to finance its expenditures while keeping the debt off the books. Thus, the debt is not counted while calculating the fiscal deficit.
The liability of the loan is not formally on the Centre and is not included in the national fiscal deficit. Thus, it helps in keeping the fiscal deficit of the country within acceptable limits.

How the borrowings are raised?

Government can raise the borrowings by asking the implementing agency to raise the required funds from the market by loans or by issuing bonds.
The borrowings can also be raised through the Public Sector Banks (PSBs) where the PSBs can be asked to fund off-budget expenses. For example, loans from PSBs were utilized for meeting the shortfall in releasing the fertilizer subsidy.

What is the importance of off-budget borrowings?

The fiscal deficit in the Union Budget is the most wanted details. Fiscal deficit is the gap between what the central government spends and what it earns. It helps in understanding the financial health of the government. This figure is highly watched by the rating agencies across the world. As a result, the government always wants to restrict the fiscal deficit at certain number. This can be restricted by “off-budget borrowings”.