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‘Misleading budget numbers’: a rejoinder

 In a rejoinder to the article, ‘Budget: misleading numbers’ by A. Rangachari, which appeared in these columns on March 24, L. M. Vas, Additional Secretary, Department of Economic Affairs, Union Ministry of Finance, writes:

Mr. Rangachari ought to have kept in mind the following facts:

The transactions on account of securities/bonds issued do not cause a cash outgo in the year of issue of these bonds/securities. As the government accounts follow cash basis of accounting, only the servicing of these securities in the form of interest payment — which represents an expenditure involving cash outflow — is taken into account for the calculation of the fiscal deficit till the year of redemption of such securities. However, these securities form part of the Liabilities of the Central Government and are included in the Statement of Liabilities of the Central Government presented in Annex-3 of the Receipts Budget 2008-09. Thus, the liabilities of the Central Government are not underreported.

During 2007-08, up to the time of presentation of Budget 2008-09, Rs. 11,257 crore of oil bonds had been issued to oil marketing companies and Rs. 7,500 crore of fertilizer bonds to fertilizer companies, on the basis of approvals in the First and Second Supplementary Demands for Grants 2007-08. These liabilities have clearly been shown in the ‘Budget at a Glance’ 2008-09. A further issue of oil bonds amounting to Rs. 9,297 crore has been proposed and presented to Parliament in the Third Supplementary Demands for Grants 2007-08, after the presentation of Budget 2008-09.

In the case of special securities of Rs. 10,000 crore proposed to be issued to SBI for subscription to the rights issue, there is no cash outgo from the Government. A Securities Redemption Fund is also being created for redeeming these securities on the due date.

Taken together, these bonds/special securities, valued at Rs. 38,054 crore, constitute 0.81 per cent of the GDP for 2007-08. Thus, the fiscal deficit of the Government for 2007-08 may be deemed to be understated only to the extent of 0.81 per cent. The impact on the revenue deficit would only be 0.60 per cent because the subscription to the SBI rights issue is a capital expenditure.

To provide for the scheme for debt waiver and debt relief, a Farmers Debt Relief Fund is being created and Rs. 10,000 crore is being transferred to the fund as an initial corpus provided through the Third Supplementary Demands for Grants 2007-08. The entire package is spread over three agricultural years beginning 2008-09 up to 2011-12 and is proposed to be provided for as a part of the regular budget exercise. The sources of financing the scheme are tax and non-tax revenues, non-debt capital receipts, and, if necessary and as a last resort, additional borrowing, in that order.

As regards the expenditure burden on account of the Pay Commission Report, the Report was submitted only on March 24, 2008. The quantum of liability arising from the implementation of the Report, to the extent accepted by the Government, and the mode of financing the liability have to be worked out accordingly and provided for through the Budget during the course of financial year 2008-09.

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