The Budget tightrope walk

The total expenditure of Union Budget 2018-19 is Rs 24.42 lakh crore. Total revenue budgeted is Rs 18.17 lakh crore. Thus, the fiscal deficit is Rs 6.25 lakh crore (24.42-18.17), which is 3.34 per cent of GDP (Rs 187 lakh crore). Yet again Government has breached fiscal deficit target of 3.2 per cent of GDP. 

Six broad categories of non-developmental expenditure are : (i)  Interest payment of Rs 5.75 lakh crore, (ii) Establishment expenditure of the Centre of Rs 5.08 lakh crore, (iii) Defence expenditure of Rs 2.82 lakh crore, (iv) Expenses for Food, Fertiliser and Petroleum subsidy totalling Rs 2.64 lakh crore, (v) Pension expenditure of  Rs 1.68 lakh crore and (vi) Grants to States under article 275 of the Constitution amounting to Rs 1.09 lakh crore.

These six heads add up to Rs 19.06 lakh crore. That leaves only Rs 5.36 [24.42-19.06] lakh crore of development expenditure, which is wiped out by fiscal deficit (Rs 6.25 lakh crore). So, unless the government borrows, development activities cannot be funded. The situation is worrisome since the government needs to spend much more than a bare Rs.5.36 lakh crore, which is only 2.86 per cent of GDP.

The government has conceived a novel concept of spending money from extra-budgetary resources, bypassing article 112 and 113 of the Constitution. Para 45 of Finance Minister’s speech reads: “extra-budgetary and non-budgetary resources of Rs 11.98 lakh crore”  will be spent by the ministries for creating rural infrastructure.  Para 114 reads: to create employment and aid growth, the government’s estimated “budgetary and extra-budgetary expenditure on infrastructure” for 2018-19 will be Rs 5.97 lakh crore. In Railway Budget 2018-19, extra-budgetary resources constitute Rs 81,940 crore. Also, the backlog of securities issued to oil marketing companies in lieu of cash subsidy is Rs 1.31 lakh crore, securities issued to fertilizer companies in lieu of cash subsidy is Rs 15,704 crore, securities issued to Food Corporation of India in lieu of cash subsidy is Rs 16,200 crore. 

The government’s propensity to raise “extra” and “non” budgetary resources and to show it in budget speech is inappropriate. Equally inappropriate is to create liabilities for the future like “I owe you” in lieu of paying cash. 
These barely shift the debt burden to future with increasing liabilities. The intention seems to hedge the actual fiscal deficit. This has been going on for decades and is not any particular government specific, but the situation now is causing deep concern.  The FM has announced (paras 45 & 114 of budget speech) a total expenditure of  Rs 16.38 lakh crore from  “extra” budgetary resources.  Who pays this money? Public Sector Undertakings? 
Special Purpose Vehicles? So, the budgetary exercise has now become an arithmetical jugglery of borrowed funds, PSU funds and SPV funds. Such accounting is flawed.         

Should the government be allowed to borrow recklessly? Should the government be allowed to mix borrowed funds with PSU funds in budget documents?  Article 292 of the Constitution stipulates that executive power of the Union extends to borrowing upon the security of Consolidated Fund of India (CFI) within such limits, if any, as may from time to time be fixed by Parliament by law and to the giving of guarantees within such limits, if any, as may be so fixed. The first condition of borrowing is the security of Consolidated Fund of India.  Security means a thing deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan to be forfeited in case of a default.  And the law has to be made by Parliament. The limits, if any, of borrowing, may also be fixed by Parliament. In furtherance of Article 292, Parliament has enacted Fiscal Responsibility and Budget Management Act, 2003 (FRBMA).  The limit enacted by Parliament has been breached repeatedly, including this year.   

Article 150 of the Constitution stipulates that accounts of the Union are required to be kept in such form as the President may on the advice of the Comptroller and Auditor-General of India (CAG), prescribe.  Is the CAG advising the Government appropriately? Should non/extra-budgetary resources be allowed to overshadow budgetary resources in the Annual Financial Statement laid before Parliament under article 112?  Should cash liabilities of the Union be allowed to be continuously deferred in the form of securities? Time is ripe to enforce Articles 150 and 292.

The government has also announced that 10 crore poor and vulnerable families will be provided coverage up to 5 lakh rupees per family per year for secondary and tertiary care hospitalization. It has announced that adequate fund will be provided for the smooth implementation of this programme.  Where will the funds come from? Even two per cent of the maximum liability to cater to 10 crore families at the rate of Rs 5 lakh per family will entail an expenditure of Rs 1 lakh crore. Once again, perhaps, some extra/non-budgetary resources may have to be tapped.  

Without providing for funds in the Annual Financial Statements under article 112 of the Constitution, announcing expenditure to the tune of several lakh crore of rupees as extra/non-budgetary resources is either a meaningless exercise or a recipe for financial emergency under article 360 of the Constitution. One of the many consequences of financial emergency stipulated under article 360 is a reduction of salaries and allowances of Judges of the Supreme Court and the High Courts! I hope such a situation would be averted at all costs!    

The author is a former Additional Solicitor General of India and is a Senior Advocate at the  Supreme Court. Views expressed are personal.