A term being deliberated upon a great deal after this year’s budget is “extra budgetary resources (EBR)”. Essentially, it is an accounting adjustment which helps government take some of its expenses off the annual budget and thus, show a lower deficit. So, what exactly is EBR, how government gets it and how it helps. Here is a look.
First a look at the figures. As per the budget documents, government’s fiscal deficit stands at Rs 7 lakh crore which would be met through borrowings. However, its total liabilities are projected to increase from Rs 100.2 lakh crore to Rs 109.5 lakh crore during FY21, or Rs 9.3 lakh crore. (A part of this is loan given to state governments). So, where is this additional money going and why it is not getting reflected in the budget?
The reason is that government is raising this additional debt but is treating it as off-budget item or extra budgetary resources (EBR). (Whether it can do it or not is another question). As per the budget, EBR would be meeting Rs 1.86 lakh crore of its expenditure in FY21 and Rs 1.73 lakh crore in FY20. (Borrowings are still about Rs 50,000 crore more which has been kept as cash). This amount is, thus, over and above the expenditure of Rs 30.4 lakh crore proposed in the budget.
So, the question is, why does the government do this? Essentially, it is accounting adjustment so that budget figures look reasonable. If this EBR was included in the budget, the fiscal deficit would increase from Rs 7.96 lakh crore to Rs 9.82 lakh crore. As a percent of GDP, this would increase from 3.5% to 4.4%, raising serious doubts on claims of adhering to the path of fiscal consolidation. Even though EBR has got lot of attention now, it is not exactly a new phenomenon. At the peak of oil prices around 2008, government had issued GS-FSBs worth Rs 1.4 lakh crore, 1.9% of then GDP, to make up for short-fall in realization by oil companies. Even though the government was paying for that, bonds reflected in the balance sheet of oil companies and not the government.
The next question is, where is the government getting this money from? Significant amount of money is mobilized through government sponsored NSSF (National Small Savings Fund) which are essentially off-market savings. Unlike deposits with banks, where banks have the discretion to lend, the discretion to utilize this money rests with government. It would be raising closing to Rs 3 lakh crore through NSSF during FY21, up from about Rs 2.1 lakh crore in FY19. Until some years, this money was being lent to state governments to fund their deficit but is largely being used by central government now. Thus, NSSF would provide about Rs 1.36 lakh crore of EBR whereas the rest, Rs 50,000 crore, would be raised from the market by government agencies as government sponsored fully services bonds (GS-FSBs). While the liability for FSBs do not show in the budget, the interest and principal repayment is done by the government.
And a word on where it is being utilized which takes us to the food subsidy bill, possibly, the most worrying figure in the budget document. The revised estimates for food subsidy for FY20 showed a decline from Rs 1.84 lakh crore to only Rs 1.08 lakh crore which came across as a pleasant surprise. However, closer examination showed that total food subsidy has actually risen to Rs 2.2 lakh crore but only Rs 1.08 is being provided through the budget with the rest coming through EBR. For FY21 also, against total food subsidy of Rs 2.52 lakh crore, only Rs 1.16 lakh crore is being provided by the budget with the rest, Rs 1.36 lakh crore, met through EBR. It may be noted that food subsidy stood at just about Rs 1 lakh crore in FY19 and has risen sharply, largely a result of National Food Security Act (FSA). While the objective of the act is commendable, its implementation deserves serious re-look. (More on this, in another article).
While EBR has rescued the government in FY20 and FY21, a serious questions mark exists as to whether government will be able to come out of it. A brief calculation shows that, assuming nominal growth rate of 11% (7%+4%), tax revenue buoyancy of 1.2 times, capital receipt of Rs 2 lakh crore and fiscal deficit of 3% for FY22, total funds available to the government would be only Rs 31.2 lakh crore, just Rs 80,000 crore more than FY21. Will it be able to manage with it? Highly unlikely.