The government’s outstanding off-budget loans, typically garnered through public-sector entities to fund welfare expenditure, are less than Rs 50,000 crore now and even these would be cleared up at an “opportune time”, finance secretary TV Somanathan said on Wednesday. Such off-Budget liabilities were in excess of Rs 3.65 lakh crore until the government cleared food and fertiliser subsidies worth Rs 3.15 lakh crore in FY21. “We are taking no new loans (off-Budget) …. If cost of those (existing loans) become higher than our borrowing cost, we may at an opportune time try to get out of them,” he told FE in an interview.
He exuded confidence that the ambitious budgetary capex target (Rs 7.5 lakh crore for FY23) will be achieved. At the same time, he acknowledged that it would be a daunting task, given that several things, including land acquisition for fresh projects, need to be completed on time. For the current fiscal, the budgetary capex is estimated to be about Rs 5.51 lakh crore, after excluding the infusion into Air India.
Asked as to why the government refrained from offering any medium-term fiscal framework, he indicated that it was sort of inevitable, considering the heightened level of uncertainties caused by the pandemic and strong external headwinds.
“…but we have one medium term goal—that is to reduce fiscal deficit to 4.5% of GDP by FY26,” he said. But it would be premature at this point to offer elaborate details of how exactly this target would be met, he added.
Somanathan conceded that any surge in oil prices and tightening of interest rates by central banks of advanced nations could ultimately impact the Indian economy. But given the elevated foreign exchange reserves, the country’s vulnerability is way lower than in 2013, when the last round of taper tantrum happened.
He differed with the view that the Rs 1-lakh-crore loan support to states to boost their asset creation is a compensatory mechanism for the proposed discontinuation of GST incentives to states, who otherwise could cut capex if finances are squeezed.
“The driving consideration (for this move) is to increase capital expenditure and the Centre alone may not be able to do it to the desired extent…The kind of projects which the Centre takes up — railway, road, telecom and few others — are not necessarily dispersed around the country.”
“Job creation will happen very well through the state capex because the intervention would be in all districts and all parts of the country. The Rs 1-lakh-crore assistance in this manner can produce much better effect than some other demand-driven programmes,” Somanathan said.
The finance secretary said, with the hardening of yield on state development loans, some states may find it attractive to tap the National Small Savings Fund again next fiscal. Many states have of late opted out of this route to fund their fiscal deficit, as NSSF interest rates remained higher than the market borrowing costs in recent years.
The SDL issuance in the auction on Monday was 45.9% higher than a year before (Rs 16,300 crore) and the second highest weekly borrowing so far in FY22, according to CARE Ratings. Accordingly, the weighted average cut-off of SDLs hardened by 14 basis points to a high 7.25% on Monday from 7.11% in the last auction, it said.
Meanwhile, the Centre has budgetted to reduce the offtake from the NSSF from Rs 5.9 lakh crore in FY22 to Rs 4.3 lakh crore. This will create the scope for states to tap the NSSF again in a bigger way.
In a distinct break from the past, the Centre won’t resort to the so-called extra-budgetary resource (EBR) mop-up in FY23. As such, it has progressively whittled down its fresh EBR accretion in recent years (it will be reined in at just Rs 700 crore in FY22) to improve transparency in Budget-making. This route was tapped aggressively earlier to mask the Centre’s actual fiscal deficit, something that was flagged and frowned upon by the Comptroller and Auditor General and the 15thFinance Commission.
Most of the off-Budget loans of the Centre used to be accessed from the National Small Savings Fund to the Food Corporation of India.
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