Budget 2020: Govt likely to fund some $28 bn of FY21 expenditure via off-budget borrowings; move aims to keep fiscal deficit under check

  • Prime Minister Narendra Modi’s govt is under pressure to increase spending on rural welfare schemes and infrastructure to boost growth

  • The IMF this month cut India’s growth forecast to 4.8% for the ongoing fiscal year — its lowest level in 11 years

  • The government could increase the target of raising revenue through privatisation of state companies to Rs 1.5 lakh crore for next fiscal year

New Delhi: India is likely to fund roughly $28 billion of its expenditure outlay in its Budget for fiscal 2020/21 via off-budget borrowings, three government sources said, as it seeks to revive a sagging economy while keeping its fiscal deficit in check.

Prime Minister Narendra Modi’s government is under pressure to increase spending on rural welfare schemes and infrastructure to boost growth that has fallen for six straight quarters.

Off-budget borrowings are a means by which the government keeps its fiscal deficit in check by making quasi-government entities borrow on its behalf, to partly fund its expenditure plan for the year.

 Budget 2020: Govt likely to fund some  bn of FY21 expenditure via off-budget borrowings; move aims to keep fiscal deficit under check

Representational image. News 18.

This would mark a roughly 13.8 percent increase in so-called off-budget borrowings from an estimated Rs 1.75 lakh crore ($24.6 billion) in the ongoing fiscal year, said the three sources, who have direct knowledge of the matter and asked not to be identified as the discussions are private.

“We’re facing a serious economic crisis,” said one of the sources, adding there was no alternative but to raise spending on infrastructure and welfare schemes to boost consumer demand and create jobs.

“You should not be surprised if the real deficit touches 4.5 percent of GDP,” he said, adding the “official” deficit could be kept between 3.5 percent and 4 percent of Gross Domestic Product (GDP).

He said the government had realised it needed to take all possible steps to support growth “after initial denial of the economic slowdown”.

A spokesman for the finance ministry declined to comment, citing the silent period ahead of the Budget speech on 1 February.

The International Monetary Fund (IMF) this month cut India’s growth forecast to 4.8 percent for the ongoing fiscal year - its lowest level in 11 years.

Finance Minister Nirmala Sitharaman, who will deliver the Budget speech, is widely expected to announce stimulus measures for small businesses and non-banking finance companies as a cut in corporate tax rates and rate cuts by the central bank have failed to revive growth.

The fiscal deficit for the current fiscal year was likely to touch 3.7 percent or 3.8 percent of GDP after the slowdown dented revenue collections, the second government official said.

In the 2020/21 Budget, Sitharaman could announce plans to spend over 105 trillion rupees ($1.48 trillion) on infrastructure in the next five years and expand annual spending on railways, roads, renewable energy, water and health sector by up to 20 percent, said the first official.

“Inflation is not an issue for now,” he said, adding that India needed 5-6 percent inflation to improve agricultural and corporate earnings.

The government could increase the target of raising revenue through privatisation of state companies to Rs 1.5 lakh crore for next fiscal year, the second official said.

India’s committed spending, excluding capital spending, could be targeted at near Rs 27 lakh crore ($379.91 billion) for the next fiscal year, compared to the Budgeted Rs 24.5 lakh crore in the current fiscal year, while about 4 trillion rupees could be allocated to capital spending, the first official said.

Modi’s party has also urged him to announce steps to revive real estate and other sectors.

“We are no more in a denial mode,” Gopal Krishan Agarwal, the head of BJP’s Economic Affairs Cell, told Reuters. “You will see measures in the Budget to boost investments and growth.”

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Updated Date: Jan 23, 2020 19:34:53 IST