Since the middle of 2000’s, liabilities of Central Government of India (GOI) have been increasing by a significantly higher amount as compared to the declared Gross Fiscal Deficit.
For example, as on 1st April 2004, the liabilities of GOI were Rs. 17,366 trillion. The same increased to Rs. 39,445 trillion on 31st March 2011. This is an increase of Rs. 22,079 trillion in the seven year period. These figures are taken from Reserve Bank of India (RBI) data. Although there was some built up in deposits with RBI by GOI in the intervening period, these balances have been run down by the end of the period. Hence, the entire increase in liabilities should have been accounted for by the fiscal deficit.
During the same seven year period, the cumulative fiscal deficit declared by GOI was Rs. 16,982 trillion. This fiscal deficit is significantly below the increase in liabilities of the GOI. The difference is Rs. 5,100 trillion approximately for 2004-2011 period.
India’s cumulative GDP for the 2004-2011 period was Rs. 362,233 trillion. The difference of Rs. 5,100 trillion during this period works out to about 1.4% of the GDP during the same period. The published average fiscal deficit works out to 4.7% of fiscal deficit for 2004-11 and the increase in borrowings of the GOI during the period amounted to 6.1% of GDP.
Further our analysis shows that out of the Rs. 5,100 trillion under reporting of fiscal deficit, more than Rs. 4,000 trillion has occurred in the April 2008 to March 2011 period, or 2% of GDP for this three year period. The difference between the reported fiscal deficit and the increase in GOI liabilities could be due to several accounting lacunae employed by GOI, such as non recognition of fuel and fertilizer subsidies in the budget documents.
In this era of sharp scrutiny of government finances across the globe, it is important that GOI comes clean on the actual level of fiscal deficit in the budget documents, and then credible plans to revert back to more sustainable levels. Transparency in this matter should prove a valuable ally for the government.