Off-budget borrowings have undermined transparency in India’s public finances. Examine the issue with reference to CAG findings and the reforms since 2022.

Introduction:

CAG Report No. 20 of 2022 on Compliance of FRBM, presented to Parliament in March 2022, found off-budget borrowings of ₹70,000-1.5 lakh crore annually between 2016-17 and 2020-21, escaping FRBM Act 2003 limits. The Finance Ministry has since classified ₹2.6 lakh crore in extra-budgetary resources (EBRs) as effective debt of the Centre.

Nature of the problem: Off-budget borrowings include FCI loans from the National Small Savings Fund (NSSF) for food subsidies (₹2.65 lakh crore by 2020-21), NHAI bond issuances (₹4.06 lakh crore in 2021-22), and PSU-led debt for fertiliser and irrigation projects. These bypass the fiscal-deficit headline, breach FRBM Section 4(2) transparency, and circumvent the borrowing ceiling under Article 292.

CAG findings: The Auditor flagged that EBRs distort intergenerational equity, override Parliament's Article 114 appropriation control, and inflate the effective fiscal deficit by 1.0-1.8 percentage points of GDP. The 2021-22 Audit Report on State Finances also found state OFBs (especially Telangana, Andhra Pradesh, Kerala, Punjab) crossed 4-6% of GSDP through SPVs.

Reforms since 2022: Budget 2022-23 phased out FCI's NSSF route; food-subsidy is now wholly on-budget (₹1.97 lakh crore in 2024-25). The Net Borrowing Ceiling for States now subsumes OFB from State PSUs and SPVs (Department of Expenditure, March 2023). The Centre directed Ministries to flag all guarantees in PFMS and the Budget at a Glance.

Way forward:

The Ministry of Finance should amend FRBM Act Section 7 by FY27 to define and statutorily cap off-budget borrowings, mandate PFMS guarantee disclosure, and align fiscal reporting with IMF GFS 2014 standards.