With the fiscal deficit on a declining trend since the fiscal consolidation process began in 2003-04, the government looks on target to achieve the FRBM Act (Fiscal Responsibility and Budget Management) targets by 2008-09. But there is more to the story then what just meets the eye. According to a Crisil study, the reported fiscal deficit numbers do not take into account the non-cash transfers in the form of bonds issued to oil, food and fertilizer companies. To compensate these companies for selling their products below cost, the government has been issuing special bonds to them. These bonds are off balance sheet and do not bloat the fiscal deficit. “The value of outstanding bonds (based on the last two years for oil bonds) implies that the figure for the debt/GDP would be underestimated by 1.7 per cent this year,” Crisil said in a review of the budget. Fiscal consolidation is therefore, subject to downside risks if international commodity and oil prices continue to increase. The bond issues will further inflate the true fiscal deficit numbers, it said. The Central Government has been periodically issuing special bonds to the oil marketing companies (since 1997-98), the Food Corporation of India (FCI) (in 2006-07) and fertiliser companies (in 2007-08). Crisil said the pressure to achieve the FRBM target has given the government the incentive to push such items off-balance sheet. Officially, the issuance of these four types of bonds is considered to be fiscal deficit neutral since they do not involve cash flow and are, therefore, not treated as part of fiscal deficit, although their interest payments are included in the revenue expenditure. In the budget of 2008-09, the government partly recognised that these bonds have fiscal implications as they add to the fiscal liabilities of the government and therefore listed the actual figures of oil and fertilisers bonds for the current fiscal, as off now, in the budget at a glance, Crisil said. During 2007-08, special bonds amounting to Rs 7,500 crore and Rs 23,460 crore respectively, are envisaged for fertiliser companies and oil marketing companies.
