{"id":100733,"date":"2026-04-28T17:53:20","date_gmt":"2026-04-28T12:23:20","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=100733"},"modified":"2026-04-28T17:53:20","modified_gmt":"2026-04-28T12:23:20","slug":"off-budget-borrowing","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/off-budget-borrowing\/","title":{"rendered":"Off Budget Borrowing, Meaning, Mechanism, Issues, Way forward"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Off-budget borrowing is a method of financing government expenditure through public institutions or PSUs instead of direct borrowing by the Centre. The loans are used for government schemes but are not shown in the official fiscal deficit, even though the government ultimately bears the repayment burden. It is mainly used to manage fiscal deficit targets and fund subsidies, but it raises concerns about hidden debt, lack of transparency, and weak fiscal discipline.<\/span><\/p>\n<h2><b>Off Budget Borrowing Meaning<\/b><\/h2>\n<p><b>Off-budget borrowings<\/b><span style=\"font-weight: 400;\"> are <\/span><b>loans that are taken not by the Centre directly, but by another public institution which borrows on the directions of the central government<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Such borrowings are used to fulfil the government\u2019s expenditure needs.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">But since the <\/span><b>liability of the loan is not formally on the Centre<\/b><span style=\"font-weight: 400;\">, the <\/span><b>loan is not included in the national <\/b><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/fiscal-deficit\/\" target=\"_blank\"><b>fiscal deficit<\/b><\/a><b>.<\/b><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This helps keep the country\u2019s fiscal deficit within acceptable limits.<\/span><\/li>\n<\/ul>\n<h2><b>Mechanism of Off-Budget Borrowing<\/b><\/h2>\n<p><b>The government can ask an implementing agency to raise the required funds from the market through loans or by issuing bonds.\u00a0<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">For example, in the Budget presentation for 2020-21, the government paid only half the amount budgeted for the food subsidy bill to the <\/span><strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/fci-role\/\" target=\"_blank\">Food Corporation of India<\/a><\/strong><span style=\"font-weight: 400;\">. The shortfall was met through a loan from the National Small Savings Fund.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Public sector oil marketing companies were asked to pay for subsidised gas cylinders for <\/span><strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/pradhan-mantri-ujjwala-yojana-pmuy\/\" target=\"_blank\">Pradhan Mantri Ujjwala Yojana <\/a><\/strong><span style=\"font-weight: 400;\">beneficiaries in the past.<\/span><\/li>\n<\/ul>\n<p><b>Public sector banks are also used to fund off-budget expenses.\u00a0<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">For example, loans from PSU banks were used to make up for the shortfall in the release of fertiliser subsidies.<\/span><\/li>\n<\/ul>\n<h2><b>Reasons for Off-Budget Borrowing<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The primary reasons for resorting to off-budget borrowing include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Meeting fiscal deficit targets<\/b><span style=\"font-weight: 400;\">: Governments use off-budget borrowing to keep the reported fiscal deficit within <\/span><strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/fiscal-responsibility-budget-management-act\/\" target=\"_blank\">FRBM<\/a><\/strong><span style=\"font-weight: 400;\">-mandated limits while still financing required expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Managing subsidy burden<\/b><span style=\"font-weight: 400;\">: Large and recurring subsidies such as food, fertiliser, and LPG are often financed through entities like FCI and PSUs to avoid immediate strain on the central Budget.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Bridging budgetary under-provisioning<\/b><span style=\"font-weight: 400;\">: When actual expenditure exceeds allocated Budget estimates, off-budget channels are used to meet the shortfall without revising fiscal numbers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Financing capital and infrastructure projects<\/b><span style=\"font-weight: 400;\">: Special Purpose Vehicles (SPVs) and extra-budgetary resources are used for long-gestation infrastructure projects like railways, roads, and irrigation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Avoiding fiscal pressure visibility<\/b><span style=\"font-weight: 400;\">: It helps present lower official borrowing and deficit figures, maintaining macroeconomic stability perception and investor confidence.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Handling economic shocks and emergencies<\/b><span style=\"font-weight: 400;\">: During crises such as economic downturns or the COVID-19 period, it enables faster mobilisation of resources without immediate budget restructuring.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Maintaining policy flexibility<\/b><span style=\"font-weight: 400;\">: It allows governments to continue welfare and development spending despite constraints in formal budgetary allocations.<\/span><\/li>\n<\/ul>\n<h2><b>Issues with Off-Budget Borrowing<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Off-budget borrowing raises serious concerns regarding fiscal transparency, accountability, and long-term debt sustainability. The <\/span><strong><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/comptroller-and-auditor-generalcag\/\" target=\"_blank\">Comptroller and Auditor General (CAG)<\/a><\/strong><span style=\"font-weight: 400;\"> in its 2019 report highlighted that such financing mechanisms shift major sources of funds outside the direct control of Parliament, despite having clear fiscal implications.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Undermines parliamentary oversight<\/b><span style=\"font-weight: 400;\">: A significant portion of public expenditure is financed outside the Budget, reducing effective scrutiny by Parliament over government finances.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Crowding Out<\/b><span style=\"font-weight: 400;\">: When PSUs borrow heavily from the market to fund government projects, it leaves less credit available for private companies, potentially raising interest rates for everyone.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Distorts fiscal indicators<\/b><span style=\"font-weight: 400;\">: Since these borrowings are excluded from fiscal deficit calculations, they present an incomplete and potentially misleading picture of the government\u2019s fiscal position.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Weakens fiscal transparency<\/b><span style=\"font-weight: 400;\">: Off-budget financing reduces clarity in public accounts, making it difficult to assess the true level of government liabilities and expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Creates hidden debt burden<\/b><span style=\"font-weight: 400;\">: Although not immediately visible in official statistics, these borrowings eventually become government liabilities, increasing long-term public debt.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Undermines FRBM framework<\/b><span style=\"font-weight: 400;\">: It dilutes the effectiveness of fiscal discipline mechanisms under the FRBM Act by bypassing mandated borrowing limits.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Reduces accountability in public finance<\/b><span style=\"font-weight: 400;\">: Since expenditure is routed through PSUs or agencies, responsibility becomes diffused and less directly accountable to legislative oversight.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Risk of fiscal mismanagement<\/b><span style=\"font-weight: 400;\">: Over time, accumulation of off-budget liabilities can create fiscal stress and reduce policy flexibility for future governments.<\/span><\/li>\n<\/ul>\n<h2><b>Way Forward\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Ensuring fiscal transparency and long-term debt sustainability requires a structured reduction and better regulation of off-budget borrowing practices in India.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Complete transparency in fiscal reporting<\/b><span style=\"font-weight: 400;\">: All off-budget liabilities should be clearly disclosed in Union and State Budget documents to reflect the true fiscal position.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Gradual inclusion in fiscal deficit<\/b><span style=\"font-weight: 400;\">: Extra-budgetary resources should be progressively incorporated into fiscal deficit calculations to avoid hidden liabilities.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Strengthening FRBM framework<\/b><span style=\"font-weight: 400;\">: The FRBM Act should be strictly enforced with clear limits on indirect borrowings and improved compliance mechanisms.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Rationalisation of subsidies<\/b><span style=\"font-weight: 400;\">: Structural reforms in food, fertiliser, and energy subsidies can reduce dependence on off-budget financing.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Improved budgetary planning<\/b><span style=\"font-weight: 400;\">: Better estimation and allocation of expenditures can minimise the need for last-minute off-budget funding.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Stronger parliamentary oversight<\/b><span style=\"font-weight: 400;\">: Enhanced scrutiny by Parliament and its financial committees over PSU and SPV borrowings.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>CAG monitoring and audit strengthening<\/b><span style=\"font-weight: 400;\">: Regular audit and disclosure of off-budget liabilities to ensure accountability.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Reducing reliance on PSUs for borrowing<\/b><span style=\"font-weight: 400;\">: Limiting the practice of using public sector entities as financing intermediaries for government expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Fiscal consolidation focus<\/b><span style=\"font-weight: 400;\">: Medium-term strategy should aim at reducing overall debt and improving quality of public expenditure.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Off budget borrowing explained with meaning, mechanism, reasons, issues, and way forward. Know its impact on fiscal deficit, transparency, and public debt management.<\/p>\n","protected":false},"author":11,"featured_media":100699,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[786],"tags":[7198],"class_list":{"0":"post-100733","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-general-studies","8":"tag-off-budget-borrowing","9":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/100733","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=100733"}],"version-history":[{"count":1,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/100733\/revisions"}],"predecessor-version":[{"id":100738,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/100733\/revisions\/100738"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/100699"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=100733"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=100733"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=100733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}