Off-budget borrowings and contingent liabilities often mask the true fiscal position of governments, leading to fiscal stress, reduced credibility, and long-term economic risks. Ensuring fiscal transp...
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Off-budget borrowings and contingent liabilities often mask the true fiscal position of governments, leading to fiscal stress, reduced credibility, and long-term economic risks. Ensuring fiscal transp...

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Off-budget borrowings and contingent liabilities often mask the true fiscal position of governments, leading to fiscal stress, reduced credibility, and long-term economic risks. Ensuring fiscal transp...

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Need for Fiscal Transparency

Realistic Assessment of Fiscal Health: Off-budget borrowings by state PSUs, guarantees to parastatals, and deferred liabilities can hide actual debt levels, leading to underestimation of fiscal risks.
Prevention of Fiscal Slippage: Transparent reporting discourages creative accounting and ensures compliance with FRBM norms.
Market Confidence and Creditworthiness: Investors and lenders rely on clear fiscal data; opacity leads to higher borrowing costs and reduced investment inflows.
Accountability and Public Trust: Transparency strengthens democratic oversight and ensures that borrowings are used responsibly for development rather than short-term political gains.
Risk Management: Understanding contingent liabilities—like guarantees for power, irrigation, or transport utilities—helps governments anticipate and mitigate potential defaults.

Strengthening Fiscal Responsibility: Reporting and Institutional Reforms

Comprehensive Disclosure:

Publishing detailed statements on guarantees, PSU liabilities, and off-budget borrowings in state budgets.
Adopting accrual-based accounting to capture future obligations more accurately.

Independent Fiscal Institutions:

Empowering State Finance Commissions and establishing independent Fiscal Councils for analysis, forecasting, and compliance review.
Strengthening Accountant General audits and timely CAG reporting.

Reforming PSU and Guarantee Management:

Setting transparent ceilings on guarantees, enabling risk-based premium pricing, and improving PSU financial discipline through corporate governance reforms.

Digital Public Financial Management Systems:

Integrating treasury, budget, and debt management systems for real-time tracking of liabilities.

Linking Borrowing Flexibility with Transparency:

Allowing additional borrowing limits for states that meet disclosure norms, incentivising responsible fiscal behaviour.

Thus, fiscal transparency, supported by improved reporting and institutional reforms, can create a balanced framework where states maintain fiscal responsibility while mobilising resources for long-term development needs.

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