## wpiea2020250-print-pdf ## Source details **Canonical URL:** [wpiea2020250-print-pdf](https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020250-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2020/english/wpiea2020250-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2020/english/wpiea2020250-print-pdf.pdf.json) --- ### Fiscal balance observation - Estimated range: "0.8 percent to 2.4 percent of GDP." - Interpretation: "This implies that despite a reduction in the center’s headline fiscal deficit of about 1.0 percentage point over this same time period (from 4.4 to" ### Extended Fiscal Deficit: definition and components - Central government’s overall PSBR (the sum of its headline deficit and the borrowings of its PSUs) increased from 5.2 to 5.8 percent (percent of GDP). - Estimates for FY2019/20 provided in the Union budget imply a similar level of CGPSU borrowings in that fiscal year; this remains highly uncertain until after the end of the fiscal year, especially in the context of the COVID-19 pandemic. - To construct an extended notion of the central government’s fiscal deficit, two items are added to the central government’s headline fiscal deficit: - Financing for CGPSUs which comes from the National Small Savings Fund (NSSF) - New issuances of government fully serviced bonds - Rationale: both items affect government debt stock—NSSF loans directly, fully serviced bonds at their eventual repayment date. ### Off-budget financing through NSSF loans (key figures) - FY2015/16: Total NSSF net new loans to public agencies: - - FY2016/17: Total NSSF net new loans to public agencies: -0.41 (percent of GDP) - FY2017/18: Total NSSF net new loans to public agencies: 0.48 (percent of GDP) - FY2018/19: Total NSSF net new loans to public agencies: 0.54 (percent of GDP) - Component breakdown (percent of GDP): - Food Corporation of India: FY2016/17 -0.41; FY2017/18 0.27; FY2018/19 0.34 - NHAI: FY2017/18 0.11; FY2018/19 0.10 - Air India: FY2017/18 0.02; FY2018/19 0.00 - BMTPC: FY2017/18 0.04; FY2018/19 0.00 - IRFC: FY2017/18 0.05; FY2018/19 0.04 - PFC: FY2018/19 0.04 - REC Ltd: FY2018/19 0.02 - Note: Figures report additional loans, net of repayments during the FY. ### Extended fiscal deficit: headline numbers (percent of GDP) - FY2016/17: - Central government fiscal deficit (authorities' definition): 3.5 - Off-budget financing: 0.4 - Government 'fully serviced' bonds: 0.1 - Extended fiscal deficit: 3.9 - FY2017/18: - Central government fiscal deficit (authorities' definition): 3.4 - Off-budget financing: 0.5 - Government 'fully serviced' bonds: 0.1 - Extended fiscal deficit: 4.0 - FY2018/19: - Central government fiscal deficit (authorities' definition): 3.8 - Off-budget financing: 0.5 - Government 'fully serviced' bonds: 0.3 - Extended fiscal deficit: 4.6 - Sources cited in text for these numbers: Union Budget documents (Annex 8; Statement 27) and Authors' calculations. ### Importance of sound fiscal reporting (findings) - Headline central deficit numbers can be misleading; the analysis shows fiscal policy was more expansionary than headline figures suggested. - The PSBR exceeds net household financial savings, implying potential crowding out of private investment. - Need for regular monitoring of state finances by the center to: - Foster good governance and fiscal discipline at the state level. - Identify and manage fiscal risks from states or state-level PSUs that could entail costs for the center (explicit or implicit obligations). - Cross-country evidence on realized contingent liabilities (average fiscal costs): - Financial sector contingent liabilities: 9.7 percent of GDP - Bailout of subnational governments: 3.7 percent of GDP - Bailout of state-owned enterprises: 3.0 percent of GDP - Some bailout episodes reached costs as high as 12 to 15 percent of GDP. - Exceptional scale of COVID-19 fiscal response increases the need for accurate, timely, and transparent fiscal reporting; upfront clear and transparent criteria to identify beneficiaries are important. ### Assessment of India's fiscal reporting practices (four dimensions) - Institutional coverage: - Monthly Union budget execution data compiled by Controller General of Accounts (CGA). - Monthly state execution data produced by states' accountants general but not systematically public. - Public Enterprises Survey produced annually for central public sector enterprises. - No consolidated fiscal information on districts or municipalities; no unified repository for state-level PSUs information. - India among three G20 countries (with Saudi Arabia and Argentina) not producing full general government data in line with GFS standards. - India committed under G20 Data Gaps Initiative to compile quarterly GFS for consolidated general government by 2021; as of 2019, India had not recorded progress. - Timeliness and frequency: - Union budget execution data: monthly with a one-month lag. - RBI mid-year review: published with a two-month lag. - Public debt reports: quarterly with a quarter lag (rated “Basic” under IMF FTC). - Combined Union and state financial accounts: produced by MoF two years after the end of the fiscal year (not audited). - Target recommendation: audited statements released within seven to nine months. - Comprehensiveness: - Government operates under cash-basis accounting; limitations include lack of tracking receivables/payables, assets/liabilities, and risk of deferring cash disbursements. - Emerging accrual elements: statements of liabilities reported regularly; government accounts record financial assets though valuations not regularly updated. - Main shortcomings: (i) absence of systematic nonfinancial asset registers; (ii) lack of reporting on public pension liabilities; (iii) absence of recording of contingent liabilities other than explicit guarantees; (iv) lack of commitment control mechanisms. - Wide variation in reported accrual information prevents consolidated general government balance sheet. - Transition to accrual accounting typical duration: at least seven years; many countries moving towards accrual; India is among 30 percent of 150 countries tracked that still use pure cash accounting. - Access to fiscal information: - Increased data release has not necessarily improved transparency for non-specialists. - Union government scored 49/100 in Open Budget Survey 2019 (global average 45) due to absence of a forward-looking fiscal strategy document released several months before the budget. - Transparency across states varies widely; Transparency International India (2020) survey: only Union government considered transparent; Assam, Andhra Pradesh, Odisha, and Jharkhand display medium transparency; nine states considered opaque. ### Policy recommendations (three reform pillars and short-run steps) - Three key reform pillars: - Improve timeliness via enhanced IT systems able to deliver and consolidate comprehensive high-frequency information; set clear standards on information to be collected and compiled; possibly set up a dedicated platform for all government units to share fiscal information. - Reinforce the Union government’s role in center-state coordination: regular review of states' fiscal positions and public sector entities; set common reporting and transparency standards; consider financial incentives for timely state reporting. - Increase comprehensiveness through a gradual move to accrual accounting across Union and state governments with a clear medium-term strategy (average seven to ten years), leveraging reforms such as the e-asset register. - Short-run immediate steps: - The Union government should clearly designate the agency/unit in charge of spearheading the consolidation exercise. - The Union should set common standards for information sharing by States, including a template for regular fiscal reporting and a calendar for data collection and publication. - The Union government should move towards the calculation of a full central government deficit in line with GFSM 2014, along with a commitment to refrain from deferring cash payments, including unduly delaying tax refunds, and recourse to off-budget operations. - Compile a list of major state-level PSUs to assess fiscal risks related to them. - Compile and consolidate existing asset registries at the Union and state levels to draw up a first rough picture of general government assets. ### Conclusion (key points) - Enhancing fiscal reporting in India is challenging because of the country’s size and multiple tiers of government, but critical because most government activity occurs outside the Union government’s scope. - A consolidated national picture requires capacity development across all levels of public sector; some states are more advanced, but capacity gaps persist. - The Union government should lead by example, set common reporting and budgeting standards, disclose extra-budgetary activities more clearly, and fully integrate them in the presentation of the Union-level fiscal stance using the methodologies presented in the paper. - Governments should provide more user-friendly and forward-looking fiscal information and narratives (e.g., as part of a fiscal strategy statement) to help investors, markets, and the public understand actual fiscal stance and risks. *Source: wpiea2020250-print-pdf - 0.8 percent to 2.4 percent of GDP. This implies that despite a reduction in the center’s (PDF).* ### 0.8 percent to 2.4 percent of GDP. This implies that despite a reduction in the center’s ### wpiea2020250-print-pdf - 0.8 percent to 2.4 percent of GDP. This implies that despite a reduction in the center’s ### Fiscal balance observation - Estimated range: 0.8 percent to 2.4 percent of GDP. - Interpretation: "This implies that despite a reduction in the center’s headline fiscal deficit of about 1.0 percentage point over this same time period (from 4.4 to" ### Key statistics (verbatim) - "0.8 percent to 2.4 percent of GDP." - "about 1.0 percentage point" - "(from 4.4 to" *Source: wpiea2020250-print-pdf - 0.8 percent to 2.4 percent of GDP. This implies that despite a reduction in the center’s (PDF).* ### 3.4 percent of GDP, between FY2013/14 and FY2018/19, according to the authorities’ ### 3.4 percent of GDP, between FY2013/14 and FY2018/19, according to the authorities’ presentation of the fiscal deficit ### Extended Fiscal Deficit: definition and components - The central government’s overall PSBR (the sum of its headline deficit and the borrowings of its PSUs) increased from 5.2 to 5.8 percent (percent of GDP). - Estimates for FY2019/20 provided in the Union budget imply a similar level of CGPSU borrowings in that fiscal year; this remains highly uncertain until after the end of the fiscal year, especially in the context of the COVID-19 pandemic. - To construct an extended notion of the central government’s fiscal deficit, two items are added to the central government’s headline fiscal deficit: - Financing for CGPSUs which comes from the National Small Savings Fund (NSSF) - New issuances of government fully serviced bonds - Rationale: both items affect government debt stock—NSSF loans directly, fully serviced bonds at their eventual repayment date. ### Off-budget financing through NSSF loans (key figures) - FY2015/16: Total NSSF net new loans to public agencies: - - FY2016/17: Total NSSF net new loans to public agencies: -0.41 (percent of GDP) - FY2017/18: Total NSSF net new loans to public agencies: 0.48 (percent of GDP) - FY2018/19: Total NSSF net new loans to public agencies: 0.54 (percent of GDP) - Component breakdown (percent of GDP): - Food Corporation of India: FY2016/17 -0.41; FY2017/18 0.27; FY2018/19 0.34 - NHAI: FY2017/18 0.11; FY2018/19 0.10 - Air India: FY2017/18 0.02; FY2018/19 0.00 - BMTPC: FY2017/18 0.04; FY2018/19 0.00 - IRFC: FY2017/18 0.05; FY2018/19 0.04 - PFC: FY2018/19 0.04 - REC Ltd: FY2018/19 0.02 - Note: Figures report additional loans, net of repayments during the FY. ### Extended fiscal deficit: headline numbers (percent of GDP) - FY2016/17: - Central government fiscal deficit (authorities' definition): 3.5 - Off-budget financing: 0.4 - Government 'fully serviced' bonds: 0.1 - Extended fiscal deficit: 3.9 - FY2017/18: - Central government fiscal deficit (authorities' definition): 3.4 - Off-budget financing: 0.5 - Government 'fully serviced' bonds: 0.1 - Extended fiscal deficit: 4.0 - FY2018/19: - Central government fiscal deficit (authorities' definition): 3.8 - Off-budget financing: 0.5 - Government 'fully serviced' bonds: 0.3 - Extended fiscal deficit: 4.6 - Sources cited in text for these numbers: Union Budget documents (Annex 8; Statement 27) and Authors' calculations. ### Importance of sound fiscal reporting (findings) - Headline central deficit numbers can be misleading; the analysis shows fiscal policy was more expansionary than headline figures suggested. - The PSBR exceeds net household financial savings, implying potential crowding out of private investment. - Need for regular monitoring of state finances by the center to: - Foster good governance and fiscal discipline at the state level. - Identify and manage fiscal risks from states or state-level PSUs that could entail costs for the center (explicit or implicit obligations). - Cross-country evidence on realized contingent liabilities (average fiscal costs): - Financial sector contingent liabilities: 9.7 percent of GDP - Bailout of subnational governments: 3.7 percent of GDP - Bailout of state-owned enterprises: 3.0 percent of GDP - Some bailout episodes reached costs as high as 12 to 15 percent of GDP. - Exceptional scale of COVID-19 fiscal response increases the need for accurate, timely, and transparent fiscal reporting; upfront clear and transparent criteria to identify beneficiaries are important. ### Assessment of India's fiscal reporting practices (four dimensions) - Institutional coverage: - Monthly Union budget execution data compiled by Controller General of Accounts (CGA). - Monthly state execution data produced by states' accountants general but not systematically public. - Public Enterprises Survey produced annually for central public sector enterprises. - No consolidated fiscal information on districts or municipalities; no unified repository for state-level PSUs information. - India among three G20 countries (with Saudi Arabia and Argentina) not producing full general government data in line with GFS standards. - India committed under G20 Data Gaps Initiative to compile quarterly GFS for consolidated general government by 2021; as of 2019, India had not recorded progress. - Timeliness and frequency: - Union budget execution data: monthly with a one-month lag. - RBI mid-year review: published with a two-month lag. - Public debt reports: quarterly with a quarter lag (rated “Basic” under IMF FTC). - Combined Union and state financial accounts: produced by MoF two years after the end of the fiscal year (not audited). - Target recommendation: audited statements released within seven to nine months. - Comprehensiveness: - Government operates under cash-basis accounting; limitations include lack of tracking receivables/payables, assets/liabilities, and risk of deferring cash disbursements. - Emerging accrual elements: statements of liabilities reported regularly; government accounts record financial assets though valuations not regularly updated. - Main shortcomings: (i) absence of systematic nonfinancial asset registers; (ii) lack of reporting on public pension liabilities; (iii) absence of recording of contingent liabilities other than explicit guarantees; (iv) lack of commitment control mechanisms. - Wide variation in reported accrual information prevents consolidated general government balance sheet. - Transition to accrual accounting typical duration: at least seven years; many countries moving towards accrual; India is among 30 percent of 150 countries tracked that still use pure cash accounting. - Access to fiscal information: - Increased data release has not necessarily improved transparency for non-specialists. - Union government scored 49/100 in Open Budget Survey 2019 (global average 45) due to absence of a forward-looking fiscal strategy document released several months before the budget. - Transparency across states varies widely; Transparency International India (2020) survey: only Union government considered transparent; Assam, Andhra Pradesh, Odisha, and Jharkhand display medium transparency; nine states considered opaque. ### Policy recommendations (three reform pillars and short-run steps) - Three key reform pillars: - Improve timeliness via enhanced IT systems able to deliver and consolidate comprehensive high-frequency information; set clear standards on information to be collected and compiled; possibly set up a dedicated platform for all government units to share fiscal information. - Reinforce the Union government’s role in center-state coordination: regular review of states' fiscal positions and public sector entities; set common reporting and transparency standards; consider financial incentives for timely state reporting. - Increase comprehensiveness through a gradual move to accrual accounting across Union and state governments with a clear medium-term strategy (average seven to ten years), leveraging reforms such as the e-asset register. - Short-run immediate steps: - The Union government should clearly designate the agency/unit in charge of spearheading the consolidation exercise. - The Union should set common standards for information sharing by States, including a template for regular fiscal reporting and a calendar for data collection and publication. - The Union government should move towards the calculation of a full central government deficit in line with GFSM 2014, along with a commitment to refrain from deferring cash payments, including unduly delaying tax refunds, and recourse to off-budget operations. - Compile a list of major state-level PSUs to assess fiscal risks related to them. - Compile and consolidate existing asset registries at the Union and state levels to draw up a first rough picture of general government assets. ### Conclusion (key points) - Enhancing fiscal reporting in India is challenging because of the country’s size and multiple tiers of government, but critical because most government activity occurs outside the Union government’s scope. - A consolidated national picture requires capacity development across all levels of public sector; some states are more advanced, but capacity gaps persist. - The Union government should lead by example, set common reporting and budgeting standards, disclose extra-budgetary activities more clearly, and fully integrate them in the presentation of the Union-level fiscal stance using the methodologies presented in the paper. - Governments should provide more user-friendly and forward-looking fiscal information and narratives (e.g., as part of a fiscal strategy statement) to help investors, markets, and the public understand actual fiscal stance and risks. *Sources: Union Budget documents (Annex 8; Statement 27), 'Sources and Applications of National Small Savings Fund' Indian Union Budget document (Annex 8 for FYs 2018/19, 19/20, and 20/21, Annex 6b for FY 17/18), Ministry of Finance and IMF staff calculations, and Authors' calculations.* --- _Source: https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020250-print-pdf.pdf_