Parliamentary control over public finances is constitutionally guaranteed but practically weakened by off-budget borrowings and extra-budgetary resources." Examine this statement in the context of CAG findings and FRBM compliance.

Question

PocketIAS · Accepted Answer

Introduction Parliamentary control over public finances is anchored in the Constitution, but its effectiveness is diluted by the growing use of off-budget borrowings and extra-budgetary resources (EBRs) that escape full legislative scrutiny.

Nature of the Issue

Off-budget borrowings are liabilities raised by public sector entities or special purpose vehicles on behalf of the government
EBRs include funds mobilised outside the Consolidated Fund, often backed by government guarantees or future revenues
Such liabilities are not fully reflected in the fiscal deficit, weakening transparency

Concerns Highlighted by CAG

Understatement of fiscal deficit due to exclusion of off-budget liabilities (e.g., food subsidy financing via FCI borrowings)
Deferred subsidy payments and rolling over of liabilities obscure the true fiscal position
Weak adherence to principles of transparency and comprehensiveness in fiscal reporting
Reduced scope for Parliamentary scrutiny, as these expenditures bypass normal budgetary approval

Implications for FRBM Compliance

FRBM targets focus on headline fiscal deficit, allowing governments to meet targets through accounting practices rather than genuine consolidation
Off-budget borrowings undermine fiscal discipline and credibility
Distorts assessment of debt sustainability and inter-generational equity
Limits effectiveness of medium-term fiscal frameworks

Impact on Parliamentary Control

Erosion of the principle of “power of the purse” of Parliament
Reduced transparency weakens debate, oversight, and accountability
Legislature is unable to assess the true extent of government liabilities

Way Forward / Reforms Needed

Bring all off-budget liabilities on-budget and disclose them transparently
Strengthen FRBM framework to include broader debt and contingent liabilities
Enhance role of CAG and Parliamentary Committees in auditing EBRs
Adopt accrual-based accounting for better fiscal reporting
Limit use of government guarantees and improve their disclosure

Conclusion While constitutional provisions ensure formal parliamentary control, fiscal opacity through off-budget mechanisms weakens its spirit, necessitating reforms to restore transparency, accountability, and fiscal credibility.

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