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CAG Report on government spending

CAG Report on government spending

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  • GS 2|| Polity || Constitutional Bodies || CAG

Why in News?

  • The Comptroller and Auditor General of India (CAG) presented its report on spending in Parliament.

 CAG’s Report:

  • Off-Budget Financing: those expenditures which are not shown in the budget. Govt. has used off-budget to defer fertilizer arrears, food subsidy bills and outstanding dues of Food Corporation of India (FCI).
  • Off-budget financing: Market borrowing and ways and means advances, they are not included in the parliament.
  • Special banking arrangements were used to conceal the deferment of fertilizer subsidies.
  • Borrowed money from National Bank for Agriculture and Rural Development (NABARD) hid the spending on irrigation.
  • Railway expenditure was covered by help of moneyby Indian Railway Finance Corporation, and spending on power projects by the Power Finance Corporation.
  • Fiscal risks in the long term in cases the entity that raises the funds fails to meet debt servicing.
  • These off budget finance methods, give the govt. an altitude to meet its revenue and capital requirements. But they also pose a tendency of fiscal risks in the long term in case the entity that raises the funds fails.
  • Transparency:The quantum of such borrowings is huge and current policy framework lacks transparent disclosures and management strategy for comprehensively managing such borrowings.
  • Thus, any framework created by the government with an objective of off-budget financingshould specify the rationale and, objectives of off-budget financing and sources of fund, among others.
  • Government should also disclose the details of off- budget borrowings through disclosure statements in Budget as well as in accounts.

Example of FCI:

  • CAG report gave the example of Food Corporation of India (FCI).
  • The difference between the cost of procurement of foodgrains and cost of providing them to fair price shops is what FCI demands from the government as subsidy.
  • When the budget allocation of a financial year is not sufficient to clear all the dues of food subsidies bill raised by FCI, the dues of such subsidies are carried over to next financial year.
  • It is evident that there was increase of about 350% in carried over subsidy arrears in the five years preceding 2016-17.
  • But the government has passed on its own food subsidy burden on to the FCI, rather than servicing it from the budget.
  • This requires financing from a number of methods including very high interest cash credit facility which increases actual cost of this subsidy substantially.
  • The FCI has borrowed to pay for that burden and has also borrowed from NSSF to the tune of tens of thousands of crore to service that debt.
  • In 2017-18, the FCI took loans of around Rs 65,000 crore from the NSSF.
  • However, all this money should have been part of official government expenditure in the Budget.

Way Ahead:

  • The objectives of the FRBM Act, 2003 was to provide for the responsibility of the Central Government in order to ensure inter-generational equity in fiscal management and long-term macro-economic stability.
  • In larger extent, govt. is not able to achieve the objectives under the FRBM act.
  • So, the focus of govt. should be to provide inter-generational equity. That means if govt. depends on off-budget financing, this will carry on the cost n the burden to the next financial year. This will lead to the accumulation of arriers and inter-generational equity. Govt. should focus on long-term macroeconomic stability.
  • However, successive governments have resorted to methods like –
    • Rolling over additional subsidy burden
    • Taking back unspent amounts from ministries
    • Converting certain expenditure entries to ways and means advances
    • Running down the cash reserves
  • In 2018-19 as well, such steps are expected as the center looks to meet an increasingly difficult fiscal deficit target of 3.3% of GDP.
  • The forthcoming Union Budget should thus give the true picture of central finances.
  • Fiscal Deficit Target: should focus more on revenue mobilization.
  • Transparency – Any account of the govt. should be more transparent. Union Budget should show the true picture of central finances. Budget s
  • The CAG also recommends that investing in the troubled and loss making PSE like air India, investing the small savings fund (NSSF) should be avoided.