CONTENTS
December 30, 2005
Dr. Rakesh Mohan
Deputy Governor
Reserve Bank of India
Mumbai
Dear Sir,
Submission of the Report of the
Working Group on Compilation of State Government Liabilities
We are pleased to submit herewith
the Report of the Working Group on Compilation of State Government Liabilities.
(Narendra Jadhav)
Convenor
(K. R. Lakhanpal) (Yogesh
Khanna)
(Kavita Gupta)
Member Member Member
(V. S. Senthil) (K.G.
Mahalingam)
(M. J. Joseph)
Member Member Member
(R. H. Dholakia)
Member
ACKNOWLEDGEMENT
The Working Group gratefully acknowledges
the invaluable contributions and support of erstwhile members, Shri S.C. Garg,
then Joint Secretary (PF-I), Ministry of Finance, Government of India and Shri
Rahul Sarin, Principal Finance Secretary, Government of Jharkhand in the discussions
of the Group and in the preparation of the Report.
The Working Group places on record
its appreciation for the invaluable contributions of the special invitees, Shri
Prabal Sen, Chief General Manager-in-Charge, Department of Government and Bank
Accounts of the Reserve Bank of India (RBI) and Shri B. Mahapatra, then Chief
General Manager-in-Charge, Internal Debt Management Department (IDMD), RBI,
in the deliberations of the Group and in the preparation of the Report.
The Working Group acknowledges
the outstanding professional contributions of Dr. R.K. Pattnaik, Adviser, Department
of Economic Analysis and Policy (DEAP), and Shri Somnath Chatterjee, Director,
IDMD, RBI, who brought to bear their experience and expertise in the fiscal
area, in the discussions of the Group and in the preparation of the Report.
The Working Group would like to
place on record its appreciation for the arrangements made for its meetings
and the hospitality extended by Shri Ramesh Chander, then Regional Director,
RBI, New Delhi. The Working Group would also like to thank Shri Rajan Goyal,
Director and Smt. Sangita Misra, then Research Officer, DEAP, RBI, New Delhi
for logistical support in organizing the meetings of the Group at New Delhi.
The Working Group appreciates the
support of Shri P.D. Jeromi, Assistant Adviser, DEAP, Kochi and Shri Jai Chander,
Research Officer, Division of Central Finances, DEAP, of the RBI, in the preparation
of the Report. Helpful suggestions and analytical inputs provided by Shri A.K.
Mitra, Assistant Adviser, IDMD are gratefully acknowledged. The contributions
of the officers and staff of the Division of State and Local Finances, DEAP,
RBI, Central Office, in providing data and logistical support, and in particular,
of Shri Rajmal and Shri J.B. Singh, Research Officers, are also gratefully acknowledged.
EXECUTIVE SUMMARY
- The availability of reliable and comparable
data on debt is critical for assessing the sustainability of public finances
and for other analytical purposes.
- At present, there appears to be no unanimity
about the exact level, composition, and the methodology for compiling the
liabilities of State Governments in India. In fact, there is a great deal
of ad hocism in the compilation of debt statistics.
- The budget documents of the State Governments
do not provide data on their outstanding liabilities. Such data are, however,
provided in the ‘Finance Accounts’ of the State Governments, but these reports
are not available in respect of all State Governments on a timely basis. The
Combined Finance and Revenue Accounts of the Central and State Governments
are also released with a great deal of time lag. Moreover, some issues relating
to coverage of liabilities need to be addressed.
- Debt and liabilities should be considered as
synonymous. Accordingly, all borrowings which are repayable and/or on which
interest accrues, are to be considered as debt.
- Compilation of data on debt should be consistent
with the Gross Fiscal Deficit (GFD).
- Total budgetary liabilities of State
Governments may be decomposed in four categories viz. (i) Public Debt;
(ii) Ways and Means Advances and Overdrafts from the RBI or any other bank;
(iii) Public Accounts; and (iv) Contingency Fund. This treatment would be
in conformity with the international best practices.
- Public Debt would include open market
borrowings, borrowings from banks and financial institutions, Special Securities
issued to the National Small Savings Fund, Bonds/Debentures which are issued
by the State Government and loans from the Central Government.
- Public Accounts would include State Provident
Funds, Small Savings, Insurance and Pension Funds, Reserve Funds and Deposits
and Advances.
- The following items (under the Capital Account
of the State Government budget) should not be included in debt or GFD:
(i) Remittances; (ii) Suspense and Miscellaneous; (iii) Appropriation to Contingency
Fund (since all these are largely adjusting heads which eventually get cleared
within or across accounts); and (iv) Decrease in Cash Balances (since it does
not induce additional liability). These may, however, be shown as memo items.
- The implicit liabilities of State Governments
including guarantees, off-Budget Borrowings, Pension Fund and State Public
Sector Liabilities should be excluded from the definition of State
Government budgetary liabilities or debt.
- The information on the State Government liabilities
may be published in the State Government budget documents under the following
Statements: (1) Budgetary Liabilities of State Government (outstanding
at end-March) and their break-up; (2) Details of Guarantees given by the State
Governments (GASAB Format); (3) Assessed Fiscal Risk of State Government Guarantees;
(4) Off-Budget Borrowings of State Government; (5) Liabilities of State Government
Public Sector Undertakings; and (6) Other Implicit Liabilities of the State
Government (including pension liabilities). An additional Statement (7) on
Subsidies provided by the State Government may also be published.
- Four Annexes to Statement 1 may also
be published which would provide details (outstanding amount, rate of interest,
date of maturity, etc) of open market borrowings, loans from Centre,
borrowings from banks/financial institutions and special securities issued
to NSSF, respectively.
- The Group recognizes that there are widely differing
views on the inclusion of various implicit liabilities in order to obtain
the aggregate liabilities of the State Governments, on which a consensus may
emerge over a period time. Priority may, however, need to be accorded to the
task of collating and publishing data on the different parameters, as set
out in Statements 1 to 7, which should be available with the State Governments.
- Statements (1) alongwith the Annexes and (2)
above may be published in the budget documents of the State Governments with
effect from the fiscal year 2006-07. The remaining Statements should be published
by the State Governments as soon as possible. In case it is not possible to
bring out all the remaining Statements at the same time, a graduated approach
for publication could be adopted.
- The Government of India, RBI and other institutions
could help the States in creating necessary capacity, systems and processes
and acquiring technology to compile data on liabilities.
- The following arrangements may be made for compiling
the data: (a) RBI will provide the data on outstanding market borrowings to
the State Governments; (b) The Central Government may provide the details
regarding the loans from Centre to the State Governments and Special securities
issued by the States to NSSF; and (c) The data on borrowings from banks and
financial institutions and any other such transactions, may be provided by
the State Governments.
- For ensuring the consistency in the data, it
is desirable that a single agency compiles and disseminates the information
on outstanding liabilities of all the States. Although the State Governments
are the most reliable sources of such information, the task cannot be fully
entrusted to them unless it becomes an obligatory part of the State Budget
documents. RBI can then act as a single agency putting estimates of liabilities
of all States together in a single publication, as it does for the State Budgets.
- Timely availability of audited data on
State Government budgetary transactions continues to be beset with some difficulties,
which need to be addressed by the concerned entities at the earliest. The
CAG may also compile and publish the audited data on liabilities in addition
to the Finance Accounts of the States. The non-availability of audited data
should not delay the reporting of data on liabilities as per the ‘accounts’
(un-audited), revised estimates and budget estimates of the latest years,
on the basis of the recommended institutional arrangements.
- Till such time that the State Governments are
not in a position to publish the requisite data on their outstanding liabilities
in their budget documents, all the above data may be furnished by the concerned
institutions to the RBI, as a transitional measure, to enable consolidation
and publication.
- The RBI should compile the (latest available)
‘accounts’ (un-audited) and (revised and budget) estimates of liabilities
of all the State Governments and publish the same in its regular annual
publication on State Budgets, from the viewpoint of data dissemination and
to facilitate academic and policy research. The CAG may provide the latest
available audited data on liabilities and the same could also be reported
by the RBI in its annual study on State budgets, alongwith the ‘accounts’
(un-audited), revised estimates and budget estimates of more recent years.
Report of the Working Group on
Compilation of State Government Liabilities
I. Introduction
Constitution of Group
1.1 Recognising the various problems
associated with the database of the State Government liabilities, the 14th
Conference of State Finance Secretaries held at RBI, Mumbai in August 2004,
considered and approved the proposal of constituting a working group on the
methodology and compilation of data on the liabilities of the State Governments.
As a follow up to this proposal, a Working Group was constituted with the following
members:
1. Shri. K.R. Lakhanpal, Principal
Secretary (Finance), Government of Punjab;
2. Shri Rahul Sarin,
Principal Secretary (Finance), Government of Jharkhand;
3. Shri Yogesh Khanna,
Additional Chief Secretary, Government of Himachal Pradesh;
4. Smt. Kavita Gupta,
Secretary (Accounts and Treasury) Government of Maharashtra;
5. Shri V. S. Senthil,
Joint Secretary, (PF-I), Ministry of Finance, Government of India;
6. Shri K.G. Mahalingam,
Director General (AE & C), Office of the Comptroller and Auditor General
of India;
7. Shri M.J. Joseph,
Joint Controller General of Accounts, Government of India;
8. Prof. R.H. Dholakia,
Indian Institute of Management, Ahmedabad – Co-opted Member;
9. Shri B. Mahapatra,
Chief General Manager-in-Charge, Internal Debt Management Department, RBI
– Special Invitee;
10. Shri Prabal Sen, Chief General
Manager-in-Charge, Department of Government and Bank Accounts, RBI – Special
Invitee;
11. Dr. Narendra Jadhav, Principal
Adviser and Chief Economist, RBI – Convenor.
1The Report reflects
the views of the members and not necessarily of the institutions to which they
belong.
2Shri Rahul Sarin was succeeded by Shri M. Singh in November 2005.
3Shri S.C. Garg, predecessor of Shri V.S. Senthil, was associated with the Working
Group till May 2005.
Terms of Reference
1.2 In the first meeting of
the Group, held on November 20, 2004, in Mumbai, the terms of reference were
set as under:
1. examine the extant methodologies
of compilation of State Government liabilities by various agencies viz.,
the office of the Comptroller and Auditor General of India (CAG) / Accountant
General (AGs) of State Governments, the Finance Commission, State Governments
and the Reserve Bank of India;
2. define and delineate the composition
of State Government liabilities on the basis of analytically sound principles
(including coverage), international best practices and country-specific pragmatic
considerations;
3. evolve a Model Compilation Methodology
for State Government Liabilities in a phased manner; and
4. make recommendations on the mechanism
and institutional arrangements for data collection and dissemination of State
Government liabilities on a regular and timely basis.
Structure of the Report
1.3 The remainder of the Report
is organised as follows. Section II while discussing the present status regarding
the compilation of the liabilities of the State Governments also highlights
the limitations of the existing estimates. Section III discusses the international
practices and definitions of the pubic debt. Section IV sets out the analytical
framework for defining the outstanding public debt. On the basis of the foregoing
discussion, Section V offers recommendations of the Group for compiling the
data on the liabilities of State Governments.
II. Present Status and Limitations
of Data on State Government Liabilities
Background
2.1 Transparency, reliability
and consistency in the fiscal data are crucial for successful management of
government finances. The time series data on the liabilities of government is
of particular importance as it affects future state of affairs of government
finances. At the policy making level as well as at the academic level, a need
to streamline the reporting of data on State Government liabilities is increasingly
felt. The number of studies making an assessment of the financial health, and
the mixed results generated by them, highlight, among other things, the need
for having reliable and credible statistics on public debt which are comparable
across States, countries and time period. In this regard, the methodology for
compiling the data on debt/liabilities of State Governments assumes considerable
importance.
2.2 At present, there appears
to be no unanimity about the exact level, composition, and the methodology for
compiling the liabilities of State Governments in India. The budget documents
of the State Governments do not provide data on their outstanding liabilities.
Such data are, however, provided in the ‘Finance Accounts’ of the State Governments,
but these reports are not available in respect of all State Governments on a
timely basis.
Present Status
2.3 A survey of the existing
important publications presenting data on fiscal liabilities shows substantial
differences in definition and coverage of liabilities among these sources. This
essentially reflects that debt statistics are compiled in an ad hoc manner.
This issue needs urgent attention and action.
Finance Accounts of the State Governments Published
by CAG
2.4 The State Governments in
their budget documents currently do not publish the data on outstanding liabilities.
The accounting information and other details relating to public debt and other
liabilities of the State Governments, as published in the Finance Accounts,
are compiled and audited by respective Accountants General under authority of
the CAG. Finance Accounts are generally made available in public domain with
a time lag of one year. The definition and coverage adopted by CAG is clear
from Statement No. 4 of Finance Accounts, which contains summary of totals of
public debt and other liabilities of the State Governments, as derived from
Statements No. 16 and 17, classified under the category of internal debt,
loans and advances from the Central Government, small savings and provident
funds and obligations like reserve funds and deposits, both interest and non-interest
bearing. On the other hand, Statement No.16 contains details of receipts,
disbursements and balances under heads of account relating to Debt, Contingency
Fund and Public Account. Similarly, Statement No.17 relates to detailed Statement
of Debt and Other Interest Bearing Obligations of Government. A close scrutiny
of Statements No. 16 and 17 would reveal that detailed information and statistics
about public debt and other liabilities of the State Governments are made available,
in parts, in both the Statements and the reader is expected to assimilate complete
position after studying them. The CAG also publishes consolidated details of
public debt and other liabilities of all State Governments as part of 'Combined
Finance and Revenue Accounts of Union and State Governments in India'.
At present, this document is being published after a time lag of two to three
years, which is expected to be brought down in line with Finance Accounts. A
Staff Paper published by CAG on the subject of ‘Fiscal Liabilities (Union and
States) – Growth and Sustainability’ has also used same definition as outlined
above. As far as Combined Finance Accounts are concerned, it is, however, observed
that the latest available issue pertains to the year 1999-2000 and does not
cover liabilities under Small Savings/National Small Savings Fund (NSSF). Since
the NSSF was constituted in 1999-2000, it is expected that future issues of
the Combined Finance Accounts would incorporate the same under the liabilities
of the State Governments. Furthermore, there are negative entries in
respect of the outstanding liabilities under negotiated loans of some of the
State Governments, as reported in the Combined Finance Accounts, which need
to be elucidated.
Reserve Bank of India
2.5 In order to provide the
consolidated position of the State Government liabilities, RBI publishes the
estimated data based on the State Government budget documents on a yearly basis,
but again with a lag of approximately a year largely due to the delay in preparation
of budget documents by the State Governments.
2.6 At present, data on outstanding
liabilities of State Governments for various years as published by the RBI are
compiled from (i) the outstanding debt (stock) data (under various categories)
reported in the CAG’s 'Combined Finance and Revenue Accounts of the Union
and State Governments in India' for the year 1986-87 and (ii) ‘flows’ data
(net of repayments) on the corresponding items reported in the budget documents
of the State Governments for the subsequent years. The estimates of outstanding
liabilities are obtained by progressively adding the ‘flow’ data for each year
to the stock data for 1986-87.
2.7 The items that are included
in the liabilities of State Governments are (i) Internal Debt (including
Special Securities issued to the National Small Savings Fund (NSSF) and WMA
from the Reserve Bank); (ii) Loans from the Central Government; (iii)
Small Savings, Provident Funds, etc (including State Provident Funds,
Insurance and Pension Funds, Trusts and Endowments, and Small Savings). The
following items are not included: Reserve Funds, Deposits and Advances, Suspense
and Miscellaneous, Contingency Fund and Remittances. The (item-wise) consolidated
and State-wise data on liabilities, as published in the latest Study of State
Government Budgets, 2004-05, are shown in Appendix
1 and 2,
respectively.
Finance Commissions
2.8 As stated in the Report
of the Twelfth Finance Commission (2004), 'Previous finance commissions
had followed the practice of excluding the short-term components of debt viz.,
ways and means advances and reserve funds and deposits.' Thus, the
broad definition followed by Finance Commissions includes the same heads as
that by the Office of CAG. Its narrow definition differs only in respect that
it excludes WMA and Overdrafts from RBI.
Individual Independent Studies
2.9 There are several studies
by individual scholars attempting to define and measure debt in India.
Buiter and Patel (1992) construct debt series aggregated across Centre
(including external liabilities), States and Central Public Sector Undertakings
(PSUs) after excluding monetized deficit from the total. Rajaraman
& Mukhopadhyay (1999) construct an aggregated debt series (Centre and
States) for the period 1951 to 1997. While they follow the Buiter and Patel
study in terms of excluding monetization (although their definition of monetization
differs from Buiter & Patel), external and PSU liabilities are, however,
excluded by them, because their objective was to obtain domestic non-monetized
deficit. The items included by them, relevant for the States, are: Internal
debt (excluding WMA and Overdrafts from RBI or other banks), Provident Funds
and Reserves and Deposits. Loans from the Centre, being inter-government loans,
are excluded from State Government debt because the objective was to obtain
an aggregate series. This study, however, does not attempt to link the non-monetized
component of Gross Fiscal Deficit to the increment in debt in any given year.
Gurumurthy (2002) breaks Gross Fiscal Deficit (GFD) in terms of the following
flow components: Loans from the Central Government (net), Market Borrowings
(net), Loans from Financial Institutions, Provident funds, Reserve funds, Deposits
and Advances, etc. However, while computing the stock of debt, he includes only
Internal Debt including Market Loans and WMA, loans from banks and other financial
institutions, loans from the Central government, Provident funds and Small Saving
in his definition of State government debt and excludes Reserve funds and Deposits
& Advances. Thus, in this study also, the linkage between GFD in a given
year and increment in liability for that year is not formally established. Rangarajan
and Srivastava (2003), while recognizing this linkage, compute ‘Derived
Fiscal Deficit’ (DeFD) as the difference between the total liabilities of the
Central government for any two consecutive years. They also note the growing
disparity between DeFD and reported GFD in the series constructed by them. They
follow the same definition as followed in Finance Accounts for the Centre by
the CAG Report on Union Government (No 1 of 2003, p 109) for calculating the
fiscal deficit. This includes External debt (at historical rates), Internal
debt, Small savings, Provident funds etc. and Reserve funds and Deposits.
2.10 Dholakia (2003)
and Dholakia and Karan (2004, 2005) are some of the comprehensive individual
research studies that have attempted to define and measure State Government
liabilities in recent years. The second study is more comprehensive and covers
25 States over the period 1989-2003. Compared to the CAG study, Dholakia and
Karan (2004, 2005) exclude WMA and OD from RBI, but include Suspense & Miscellaneous
and Contingency Fund in their definition of liabilities. Even more recently,
Rangarajan and Srivastava (2005) have published data on the combined
(Centre and States) debt-GDP ratio over the period 1951-52 to 2002-03. According
to the authors, 'The debt-GDP ratio has risen from 61.7 per cent in
1990-91 to about 76 per cent in 2002-03, when external debt is considered at
historical exchange rates and liabilities of states on account of reserve funds
and deposits are not included. When these are included and external debt is
evaluated at current exchange rates an upward adjustment of about 9 percentage
points of GDP is called for, consisting of 3 and 6 percentage points for the
two factors, respectively, taking government liabilities to about 85 per cent
of GDP at the end of 2002-03.'
2.11 Figure 1 shows the components
included in the definition of liabilities by the above publications.
Figure 1: Comparison of various
definitions of Outstanding Liabilities of State Governments
Differences in sub-components between RBI and
CAG publications
2.12 When looked at the component-wise
details, the comparison is not without complications. This is apparently because
of different data sources. CAG, which prepares the Finance Accounts of
the State Governments and that of the Centre, has direct access to government
data. RBI draws on the receipts and expenditure statements in State Government
budget documents for its publications on State finances. However, a closer look
makes it clear that the difference arises on account of the classification of
sub-heads. Thus, the broad-based head of ‘Public Debt’ consisting of (i) Internal
Liabilities; and (ii) Loans & Advances from the Centre, provides
exactly the same estimates by RBI and CAG when considered together, but gives
substantially different estimates for its two components when considered separately.
In its estimates for accumulation in a given year, CAG considers WMA & OD
as a part of Internal Debt and provides a figure net of repayment (Statement
15, Finance Accounts). RBI, on the other hand, considers Internal
Debt gross of discharge of Internal Debt and excludes WMA & OD
from it (Annexure III, Handbook of Statistics on State Government Finances,
2004). Similarly, CAG considers Loans & Advances from the Centre
net of repayments, whereas RBI considers it gross. When we make these adjustments,
the ‘Public Debt’ (Net) as well as the two sub-components turn out to be identical
before 1999-2000 for most of the States. For the years 1999-2000 and thereafter,
while the aggregate estimates of ‘Public Debt’ are identical, individual components
sharply differ for almost all the States. This is because of the creation of
National Small Savings Fund (NSSF) on April 1, 1999, consequent of which the
small savings receipts from the Centre were shifted from the head Loans &
Advances from the Centre to the head Internal Debt.
4The difference, if any, arises
only on account of differing sources of data and the treatment of their sub-classification.
In some States, there is considerable time lag in finalizing State Accounts
and consequently RBI does not get the access to the actuals in time.
III. The International Experience
3.1 The availability of reliable
and comparable data on debt is critical for assessing the sustainability of
public finances and for other analytical purposes. Such data should be comparable
across countries and over the time period. The importance of having as broad
a coverage as possible has been well recognised in the literature (World Economic
Outlook 2003). A measure of debt, therefore, should include, in addition to
the Central Government liabilities, the liabilities of sub-national governments
and pubic sector enterprises as well as contingent liabilities of the government
(which may include loan guarantees, public sector pension liabilities, and even
the potential risk of bank recapitalisation). Due to the difficulties involved
the present data on public debt is not comparable across countries. There are
differences in the coverage, for instance, some countries include public sector
banks and central bank in the definition of public sector; others do not. Coverage
of extrabudgetary institutions, which are more important for the present purpose,
also varies across countries. For example, South Africa’s data exclude extrabudgetary
funds, while for Korea and Thailand the data include the debt of bank restructuring.
In general, data for Latin American countries tend to have the widest coverage
of the public sector, and data for Middle Eastern countries the narrowest. This
section provides the internationally accepted practice for compiling public
debt statistics, particularly in respect of the sub-national governments.
Definition of Debt – IMF
3.2 In its Manual on Government
Finance Statistics (GFS), 1986, IMF describes government debt as ‘a stock
of liabilities with different time dimensions accumulated by government operations
in the past and scheduled to be extinguished by the government operations in
futures’. The Manual has listed out the characteristics pertaining to government
debt which are important for the debt management. These are: (1) the schedule
of maturing debt indicates when domestic or foreign funds will be needed for
its repayments. (2) Because the stock of outstanding is not homogeneous, plans
for sale of additional debt require additional information: on whether the existing
debt is negotiable or nonnegotiable, in bearer form or registered, placed by
compulsion or voluntary, sold by auction or by subscription, with interest payable
by coupon or through discount, indexed or unindexed, redeemable at maturity
only or at penalty before maturity, and finally, on what interest it carries
and by whom the debt is held. (3) Plans for servicing outstanding debt through
interest payment must also be based on the size and coupon rate of issues being
serviced. It may be noted that the information currently being provided by many
countries is limited to only a few of the above characteristics.
3.3 The IMF’s GFS Manual 1986
specifies that only the recognised direct financial obligations of the government
which are serviced through interest payments and/or redemption should be included
in debt. Government guarantees of the debts of others should be excluded, along
with any other contingent liabilities, unless and until the government is called
upon to take over and service that debt. The contingent or actuarial liabilities
of government insurance schemes or social security systems are also excluded
from the totals of recognised, fixed-term direct government debt. The monetary
authorities’ obligations – for currency issues, for example are excluded from
government debt, as monetary authorities’ functions are considered to be not
a part of government but of financial institutions sector. The floating debt
of unpaid government obligations is also excluded from government debt figures
unless recognised and converted into fixed-term contractual obligations. Floating
debt statistics may usefully supplement government debt data, however, and are
covered by memorandum items in expenditure.
3.4 On measurement side the
Manual specifies that the basis for measurement of outstanding debt should be
the amount that will have to be repaid by government and not the amount of money
received when the debt arose. The amount to be repaid may differ from the actual
amount of government borrowing receipts by discounts or premia.
Definition of Liability - IASC
3.5 The International Accounting
Standards Committee (IASC) Framework for the Preparation and Presentation of
Financial Statements defines Liability as:'.. a present obligation of
the enterprise arising from past events, the settlement of which is expected
to result in an outflow from the enterprise of resources embodying economic
benefits.'
3.6 Based on the IASC definition,
the International Federation of Accountants (IFAC) identifies certain fundamental
characteristics of liabilities:
- the existence of a present obligation arising
from past events. That is, a transaction or other event in the past has given
rise to a duty or responsibility to a third party, which has not yet been
satisfied; and
- that liabilities have adverse financial consequences
for the reporting entity. That is, the entity has to incur additional liabilities,
or dispose of cash or other assets to settle the obligation.
3.7 IFAC finds these characteristics
present in the definition of Liability used by most countries.
I. COMPARISON OF DEFINITIONS
OF A LIABILITY
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Australia
|
Liabilities are the future sacrifices of
service potential or future economic benefits that the entity is presently
obliged to make to other entities as a result of past transactions or
other past events. (Statement of Accounting Concepts 4, 46 and AAS
29, Financial Reporting by Government Departments)
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Canada
|
Liabilities are financial obligations to
outside organizations and individuals as a result of transactions and
events on or before the accounting date. They are the result of contracts,
agreements and legislation in force at the accounting date that require
the government to repay borrowings or to pay for goods and services acquired
or provided prior to the accounting date. They also include transfer payments
due even where no value is received directly in return. (Public Sector
Accounting and Auditing Handbook, Section PS 1500 .37, 1986)
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Italy
|
No specific definition given. However, the
recognition criteria for liabilities provide the relevant characteristics.
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Netherlands
|
No formal definition exists. In practice,
all commitments of a year lead to a liability item in the trial balance
of that year and subsequently to an item in the state balance sheet, if
not settled at the balance sheet's date. The commitments regarding the
public debt (payments, repayments and interest) are stated in the national
operating statement and in the operating statement and trial balance of
the Ministry of Finance only.
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New Zealand
|
Liabilities are the future sacrifices of
service potential or of future economic benefits that the entity is presently
obliged to make to other entities as a result of past transactions or
other past events. (NZSA Statement of Concepts for General Purpose
Financial Reporting, 1993, 7.10)
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Taiwan
|
No clear definition is provided in the Law
of Accounting, Budget Law or Annual Reporting Law. In practice, liabilities
refer to obligations incurred on past transactions or other events for
which amounts can be reasonably measured and will be paid by using economic
resources or by providing services.
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United Kingdom
|
A liability is an obligation to transfer
economic benefits as a result of past transactions or events. (ASB,
FRS 5 'Reporting the Substance of Transactions')
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United States
|
A liability is a probable future outflow
or other sacrifice of resources as a result of past transactions or events.
(Statement of Recommended Accounting Standards #4, 'Accounting for
Liabilities of the Federal Government', 1995)
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Source: IFAC
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INTOSAI's Guidelines on Public
Debt Reporting
3.8 The Public Debt Committee
of the International Organisation of Supreme Auditing Institution (INTOSAI)
published the guidelines and other information for by Supreme Audit Institutions
(SAIs) to encourage the proper reporting and sound management of the public
debt.
3.9 The Committee in its guidelines
on definition of public debt has specified that the preparers of reports on
public debt need to ensure that any definitions used are precise, clear, consistent,
appropriate and comprehensive. The elements of liabilities and other commitments
incurred by public bodies or by corporations sponsored by such bodies can be
shown as lying on a spectrum that extends from direct borrowing through a range
of other financial obligations from trade accounts payable to various contingencies
and commitments. These commitments may or may not be recorded as liabilities
in financial statements. However, they may have a significant effect on future
borrowing needs and, therefore, future demands on the country's economic resources.
3.10 The public debt is characterised
as an obligation on a public body to make payments to third party at some future
date, subject to the occurrence of one or more uncertain future events if it
constitutes a contingent liability. Measuring public debt means to assign a
value, in monetary terms to the total amount due.
3.11 The Public Debt Committee
of INTOSAI underscores the importance of the regular disclosure of country's
public debt as it will reveal whether debt levels have been kept within the
country's ability to support them and can help ensure that potential problems
visible. The disclosure requirements in the United Kingdom ensure that the public
sector makes following disclosure in connection with public debt. The explanation
of risk profile and risk management policies should give information on the
nature and purpose for which financial instruments are held/issued, interest
rate policies, accounting policies for derivatives, and hedging policies. The
numerical disclosures requirements, inter alia, include interest rate
profile, debt maturity analysis and liquidity, currency risk, and fair values
of debt instruments.
Disclosure of Contingent Liabilities
3.12 Public Debt Committee of
INTOSAI recommends that the contingent liabilities may be included in the total
liabilities of the government by assigning some value based on estimates. The
degree of uncertainty in respect of these items of debt implies that different
items need to be assigned values on the basis of different estimates. However,
IMF’s GFS Manual (1986) recommends exclusion of such contingent liabilities
from public debt. There is, therefore, a difference in the practice followed
across countries for disclosing the extent of contingent debt as opposed to
actual debt. In Canada, for instance, a note to the statements concerning public
debt is appended. This note is audited, but the value of individual contingent
liabilities is not included within the overall public debt totals. In the United
Kingdom, contingent liabilities are also excluded from public debt totals but,
where possible, individual liabilities are identified and disclosed. In Portugal,
public debt (actual and some contingent amounts) is disclosed in financial statements
and is audited. However, only contingent liabilities relating to guarantees
are disclosed and with less information than for actual debt.
Where to Disclose the Public Debt
Information?
3.13 Financial information about
public debt may be reported in a wide variety of documents, for instance, budgets,
central bank bulletins and a variety of other reports to legislatures. Several
countries disclose their planned and actual public debt periodically as part
of the ongoing budget decision-making and accountability process.
IV. The Analytical Framework
4.1 From the above discussion,
it is clear that the concepts of public debt and liabilities need clearer definition
to avoid confusion and erroneous use. For policy purposes, we can consider them
as synonymous. The concept must have grounding in the analytical framework for
its effective use in policy making. The most important use of debt or liabilities
of a State Government is for assessing its fiscal sustainability. All the available
alternative measures of fiscal sustainability require correct measurement of
debt and liability of a State Government. The famous Domar Equation and its
derivation from first principles provide the basic analytical framework where
the difference between growth of income and effective interest rate on the State’s
debt plays the determining role.
4.2 Now total interest payment
is the same irrespective of the definition of debt we choose to follow. However,
the weighted average interest rate, which is also calculated as the ratio of
total interest payment to debt, will depend on the value of debt. Broader definitions
of debt would be expected to yield smaller average interest rates, thus raising
the differential between income growth and interest rate. A definitional change
might reverse the conclusions about sustainability if the differential changes
sign (see, Dholakia, 2003 for an illustration with Gujarat data).
4.3 Another critical element
in the analytical framework is the relationship between fiscal deficit and change
in debt. Fiscal deficit in any given year has to be financed either by additional
borrowings or by creating new liquidity. Since States’ access to money finance
is severely limited in India, there is a strong link between fiscal deficits
and the stock of debt for a State. Thus, the analytically correct definition
of debt would be one which satisfies the following:
Dt+1 = Dt
+ (Debt Increase)t+1
Dt+1 = Dt
+ DFDt+1 ; Where DFD: Deficit financed by borrowings
Now, GFDt+1 = DFDt+1
+ MFDt+1; Where MFD: Monetized Deficit
Therefore, Dt+1 = Dt
+ (GFD- MFD)t+1
=> ΔDt+1
= GFDt+1 - MFDt+1
4.4 The monetised deficit is
that part of deficit which is financed through WMA & OD and reduction in
cash balances of the State government. The remaining part of the deficit could,
thus, be referred to as deficit financed through borrowings (DFD).
4.5 None of the compilations
of State liabilities discussed in section II above satisfy this basic criterion
of analytically sound definition of debt. Moreover, since the correct measurement
of debt critically hinges on fiscal deficit, the latter should be measured correctly.
Measurement of Fiscal Deficit
4.6 RBI defines fiscal deficit
as per the well-accepted prevalent concept in the country:–
GFD = Total Expenditure (TE) (including
repayment of debt) – Revenue Receipts (RR) – Non-Debt Creating Capital Receipts
(NDCR) – Recovery of Loans and Advances – Repayment of debt
4.7 The above definition of
the gross fiscal deficit is followed with some variation by various agencies
including State Governments. The main source of the variance of actual calculation
of GFD from the above definition has its roots in the classification of some
of the capital receipts items. Thereby, the practice followed by various agencies
presently is normally characterised by the following discrepancies:
1.At present, Remittances, Suspense
and Miscellaneous and Inter-State settlement are treated as financing items
of GFD. The transactions relating to Remittances and Suspense & Miscellaneous,
however, embrace merely adjusting heads under which appear such transactions
such as remittances of cash between treasuries and currency chests, transfers
between different accounting circles, etc. The initial debits or credits to
these heads are cleared eventually by corresponding receipts or payments either
within the same circle of accounts or in another account circle. Of late,
it has been found that settlements under Remittances are unduly delayed by
some of the State Governments. The Group acknowledged the need for greater
transparency with respect to transactions under Remittances and Suspense and
Miscellaneous. The Group is, however, of the opinion that since Remittances
and Suspense and Miscellaneous are adjusting heads, these may be shown as
memo items among liabilities. Inter-State Settlement may also be excluded
from liabilities on similar grounds, but it may not be shown as a memo item,
since that amounts reported under this head are usually not very significant.
2. Inclusion of Miscellaneous Capital
Receipts (MCR) in NDCR is not consistent across States. Except Orissa, MCR
is excluded in other States. Hence, the Group recommends that MCR may be treated
as NDCR.
3. The head ‘Deposits and Advances’
among capital receipts in Finance Accounts shows ‘Advances’ as a debit
entry, which means an outgo. These ‘Advances’ include forest advances, departmental
advances, etc, which are recoverable. In accordance with the head ‘Loans and
Advances’, which are rightly taken as capital expenditure, ‘Advances’ under
the head ‘Deposits and Advances’ should also be taken as capital expenditure.
On the contrary, RBI considers these ‘Advances’ as a capital receipt. If this
correction is made, fiscal deficit of a State would increase to that extent.
5The Introductory on page V of
Finance Accounts 2001-02 for Kerala (common to all State Finance Accounts) says
'In the Public Account, the transactions relating to 'Debt' (other than those
included in Part I), 'Deposits', 'Advances', 'Remittances' and ' Suspense' are
recorded. The transactions under 'Debt', 'Deposits' and 'Advances', in this
part are those in respect of which Government incurs a liability to repay the
moneys received or has a claim to recover the amounts paid, together with the
repayments of the former ('Debt', and 'Deposits') and the recoveries of the
latter ('Advances'). The transactions relating to 'Remittances' and 'Suspense'
in this part embrace merely adjusting heads under which appear such transactions
as remittances of cash between treasuries and currency chests, transfers between
different accounting circles, etc. The initial debts or credits to these heads
will be cleared eventually by corresponding receipts or payments either within
the same circle of account or in another account circle.'
4.8 Fiscal deficit should, therefore,
be computed as follows:
GFD = Total Expenditure (TE) including
Repayment of Debt + Civil Advances (net) [CAG data] – Revenue Receipts (RR)
– MCR – Inter-State Settlement – Recovery of Loans and Advances – Repayment
of Debt.
Measurement of Liabilities
4.9 This GFD will be financed
by additional borrowings and monetization. As explained above, GFD = DFD + MFD.
Since the extent of monetization is reasonably limited in case of State Governments,
we replace the term MFD and call the items included therein as Memo Items.
The following items would fall under this head:
(i) Reduction in Cash Balances:
Drawing on the existing cash balances to meet the fiscal deficit does not
induce additional liability.
(ii) Appropriation to Contingency
Fund: According to explanatory note 4, statement 8 of finance accounts, Appropriation
to Contingency Fund is an ‘amount closed to government accounts (ACGA)’.
While it shows up as a part of fiscal deficit in a given year, it is
not carried to the next year and is, therefore, ‘closed’ that same year. It
is, thus, only a flow item and is classified as a memo item, as per our terminology.
(iii) Suspense & Miscellaneous;
and
(iv) Remittances.
As explained in para 4.7, items
(iii) and (iv) above are merely adjusting heads which eventually get cleared
either within the same circle of accounts or in another accounting circle.
They may, therefore, be termed as memo items.
4.10 On the other hand, DFD
would include those heads in respect of which a State Government incurs a liability
to repay the money received. Thus, within our framework, there is no difference
between Debt and Liabilities. The following heads are included in DFD, grouped
under the Consolidated Fund, Public Accounts and Contingency Fund:
1. Consolidated Fund
I. Public Debt
(a) Open Market Borrowings (Net
SLR based market borrowing)
(b) Borrowings from Banks and Financial
Institutions (Negotiated Loans)
(c) Special Securities Issued to NSSF
(d) Bonds/Debentures which are issued
by the State Government
(e) Loans from the Centre
(f) Others (To be specified)
II. Ways and Means Advances and
Overdrafts from the RBI/other banks
(a) Ways and Means Advances
(b) Overdrafts
2. Public Accounts
(a) State Provident Funds
(b) Small Savings, Insurance and Pension
Funds, Trust and Endowments, etc
(c) Other Items
Of Which:
(i) Deposits (Bearing and Not Bearing
Interest)
(ii) Reserve Fund/Sinking Fund (Bearing
Interest and Not Bearing Interest)
6Please see para 4.11.
4. Contingency Fund.
4.11 The treatment to Ways &
Means Advances and Overdrafts from RBI warrants attention. It is a form of money
finance and should ideally be included among memo items. However, in keeping
with the international practice, as outlined above (Section III), that the sources
of finance on which interest is payable should be taken as debt (or liabilities),
WMA & OD have been included among liabilities of the State Government.
4.12 Figure 2 shows
the sub-components of DFD and Memo Items, and how these together go to meet
the fiscal deficit.
Figure 2: Financing of GFD
Other Implicit Liabilities
4.13 The present report mainly
deals with compilation of debt statistics regarding explicit liabilities of
the State Governments. For assessing the sustainability of finances of State
Governments, however, the implicit commitments and contingent liabilities are
equally important. The contingent liabilities are those commitments where government
faces liabilities if a specific event occurs. These liabilities should include
the guarantees given by a State government, provision of relief in the event
of natural disaster and the financial commitments of institutions involved in
quasi-fiscal activities which the State Government may have to honour in specific
events. It may be noted that at present, only guarantees given by State
Governments are published by some of the State Governments in their budget documents
and the same is published by the Reserve Bank in its reports/documents on the
relevant subject. These, however, are excluded from the purview of liabilities
of the State Governments. In order to assess the sustainability of the State
Government finances, the fiscal risk involved in the guarantees should be identified
and quantified. The quantification of the fiscal risks of guarantees implies
that a part of them will enter into the total liabilities of the State Governments.
4.14 The State Governments in
India have been assigned the larger responsibilities of health services which
implies that the States Governments have implicit liabilities in terms of health
expenditure. Pensions are another important form of liabilities of the
State Governments. This is particularly important as some of the State Governments
are having pay-as-you-go systems and also the Old Age Pensions schemes. The
assessment of liabilities on account of the pensions could be made from the
total amount of funds an employee should contribute so that his pension is completely
financed from the funds he has contributed and income earned from the investment
of the same. Thus, the total estimates of pensions liabilities could be made
in the form of funds that would be sufficient to finance the current pensions
which are paid on pay-as-you-go system.
7Please refer to the Report of
the Group to Assess the Fiscal Risk of State Governments Guarantees (published
in the RBI Bulletin, June 2003) and the Report of the Group on Model Fiscal
Responsibility Legislation at State Level (published in the RBI Bulletin, March
2005), for further details. It may be also mentioned that the RBI has so far
organized three workshops on the subject of fiscal risk of guarantees, for the
benefit of State Government officials.
Off-Budget Borrowing and Contingent
Liabilities
4.15 Apart from the confirmed
liabilities of the State Governments discussed so far, there is a rising phenomenon
of the Off-Budget Borrowing by some State Governments through their Special
Purpose Vehicles (SPVs) where the respective State Governments give guarantee.
Thus, in principle, such liabilities are contingent liabilities. However, in
practice, since SPVs do not have any independent source of own revenue generation,
such liabilities are actual liabilities of the respective State Governments.
In particular, in case the liability is incurred for a purpose or project without
a revenue stream, leaving no surplus to service the liability (indicating complete
absence of due diligence), the fiscal risk of the State Government guarantee
would have to be very high and in that sense, such liabilities would be more
‘explicit’ than ‘contingent’. The Group also notes that liabilities could arise
in the future on account of externalities from developmental projects. The budgetary
provision in this regard would be restricted only to the outlays for the projects
and not incorporate future liabilities arising from externalities. These are
technical aspects of the measurement of such liabilities, which are beyond the
scope of examination of the present Group. At this stage, it may be noted that
all such liabilities are not created through any State budget process and hence
do not appear as a part of the fiscal deficit of the State during the year they
were incurred. Under the existing practice, the State either redeems the liability
through injecting equity to SPVs and repaying the loans on behalf of the SPVs
or contributes to the reserve fund specially created for meeting all such contingent
liabilities in future at the time of their redemption. Under both these cases,
the fiscal deficit of the current year will increase, leading to a corresponding
increase in the debt or liabilities of the State in the next year. It has also
been felt by some that certain subsidies that are provided under existing policies
and that result in committed liabilities to the State Government (as for example
power provided at concessional rates) also need to be reported in a separate
Statement detailing their nature and amounts, from the viewpoint of enhancing
fiscal transparency.
4.16 A Group of State Finance
Secretaries to assess the fiscal risk of State Government Guarantees had examined
the problem and submitted its report in July 2002. The Group recommended exercise
of financial prudence by financial institutions like NABARD, HUDCO, PFC etc.
while lending for project-based financing to SPVs with prior concurrence of
Government of India (GoI) since all borrowings by the State Governments on the
strength of guarantees have been brought under Article 293 (3) of the Constitution.
Moreover, the Group also recommended State-specific caps on the levels of borrowings
as prescribed under the (erstwhile) MTFRP and the creation of a sinking fund
with a suitable contribution from the annual net small savings collections realizable
to States. Such a fund would be managed by RBI and States contributing to the
fund would be eligible for assistance therefrom. The creation of the Guarantee
Redemption Fund is a step in the right direction because it formally incorporates
future contingent liabilities in the present budgets. The Twelfth Finance Commission
has, in fact, recommended that States should set up guarantee redemption funds
through earmarked guarantee fees, which should be preceded by risk weighting
of guarantees.
4.17 In line with the practice
recommended and followed by IMF (Section III), the Group recommends that these
contingent liabilities may be excluded from the formal definition of
liabilities. In order to incorporate this dimension, however, the Group recommends
the reporting of these liabilities on an annual basis under a separate head.
In some cases, it is indicated a priori that the liability for repayment
of principal and/or interest payment of the borrowings of SPVs would be met
by the State Government from the provisions in its Consolidated Fund. Such borrowings
of SPVs should be included under the explicit liabilities of the State Government.
Pension Fund and State Public Sector
Liabilities
4.18 Similar issues can be raised
regarding the liabilities of a State Government regarding the pension to its
employees in future and the State PSUs liabilities. It may be, however, noted
that there is no clear-cut policy to calculate the pension liabilities for employees
who entered in service till end-December 2003. Moreover, under the National
Pension Scheme, which came into effect from January 2004, the Central Government
has not extended any guarantee on the returns to the new entrants. If the same
logic were to be extended, then there would not be any liability with the State
Governments on this account. As far as PSU liabilities are concerned, there
is a suggestion that an index on the rating of each State PSU needs to be worked
out, on the basis of which the PSU liabilities could be computed and published.
These are again real problems and appropriate provisions for them need to be
made in the State budget. These will invariably increase the current and future
fiscal deficits of the State. However, if account is taken of these liabilities
as existing now and merged with the other liabilities of the State Government,
the same problem of consistency with past fiscal deficits of the State Government
would arise. Thus, in line with the practice followed by IMF (Section III),
we may exclude the Pension Fund and Public Sector Liabilities from our
formal definition of Liabilities. In order to incorporate this dimension, however,
we recommend the reporting of these liabilities on an annual basis under a separate
head. These estimates can be prepared over time when the required data are
properly compiled.
V. Recommendations
a. Defining State Government Liabilities
5.1 It is proposed that debt
and liabilities be considered synonymous. Accordingly, all borrowings which
are repayable and on which interest accrues are recommended to be considered
as debt. Alternatively, the practice followed in the Government of India budget
may be adopted by the States as well. Thus, total budgetary liabilities are
recommended to be decomposed in four categories viz. (i) Public Debt;
(ii) Ways and Means Advances and Overdrafts from the RBI; (iii) Public Accounts;
and (iv) Contingency Fund. The above treatment would be in conformity with the
international best practice. As alluded to earlier, the IMF Manual on Government
Finance Statistics, 1986, IMF describes government debt ‘a stock of liabilities
with different time dimensions accumulated by government operations in the past
and scheduled to be extinguished by the government operations in future.’
5.2 It may be noted that the
above definition of liabilities brings about a closer alignment with that of
GFD, as discussed in Chapter IV. The remaining discrepancy between computation
of GFD and liabilities is essentially on account of certain ‘Memo items’ (i.e.
withdrawal of cash balances, Appropriation to Contingency Fund, Suspense and
Miscellaneous and Remittances) which are treated as financing items of the GFD,
but excluded from liabilities. The Group recommends that withdrawal of cash
balances may continue to be taken as a financing item of GFD. Cash balances,
in any case, do not form part of liabilities. The remaining memo items viz.,
‘Appropriation to Contingency Fund’, ‘Suspense and Miscellaneous’ and ‘Remittances’
may, however, be treated as non-debt items and excluded from the computation
of GFD and liabilities, with a view to maintaining consistency between the definitions
of GFD and liabilities.
5.3 The implicit liabilities
that include Off-Budget Borrowings, Contingent Liabilities, Pensions and State
Public Sector Liabilities should be excluded from the definition of State Liabilities
or Debt. However, it is recommended that they may be disclosed in the financial
statement along with estimates of debt. In those cases, however, where it is
indicated a priori that the liability for repayment of principal and/or
interest payment of the borrowings of SPVs would be met by the State Government
from the provisions in its budget, the same should be included under the explicit/budgetary
liabilities of the State Government.
b. Coverage
5.4 As discussed earlier, the
coverage of debt should be consistent with GFD. The break-up of GFD is then
used to construct a measure of debt in annual flow i.e. Increase in Debt = Increase
in [Internal debt (including WMA & OD) (net) + Loans & Advances
from the Centre (net) + Small Savings & PF etc. + Deposits (net) + Reserve
Funds (net) + Contingency Fund (net) While both stock and flow components are
available from finance accounts- Statements 15 & 16, albeit with a delay
of two years, the flow components can be obtained from budget documents or RBI
reports on State Finances as shown in the following item exhibit.
5.5 It is also felt that the
demarcation of Public Debt into Internal Debt and Loans & Advances
from the Centre can be done away with. It is instead proposed to report
a single major head viz. Public Debt and include all items currently
reported under Internal Debt and Loans & Advances from the Centre
as minor heads within it. Figure 3 gives the final definition of Liabilities,
as proposed by this working group.
Figure 3: Debt built-up – Stock
and flow components of debt
c. Proposed Scheme for Compilation
of State Government Liabilities
5.6 There could be many sources
of the data as many agencies are involved in the transaction and reporting of
all the items included in the State Government Liabilities. For ensuring the
consistency in the data, it is desirable that a single agency compiles and disseminates
the information on outstanding liabilities of all the States. Although
the State Governments are the most reliable sources of such information, the
task cannot be fully entrusted to them unless it becomes an obligatory part
of the State Budget documents. The Government of India, RBI and other institutions
could help the States in creating necessary capacity, systems and processes
and acquiring technology to compile data on liabilities. RBI can then
act as a single agency putting estimates of liabilities of all States together
in a single publication, as it does for the State Budgets. The proposed
scheme for the publication of liabilities is set out below.
Format for publishing the information
of State Government liabilities
5.7 It is proposed to publish
in the State Government Budget documents the information of the State Government
liabilities under the following statements:
(1) Budgetary Liabilities of State
Government (outstanding at end-March) and their break-up. This Statement would
have four Annexes providing details of:
a) Open Market Borrowings
b) Loans from the
Centre
c) Details of borrowings
from banks/financial institutions
d) Special Securities
issued to NSSF
(2) Details of Guarantees given
by the State Governments (GASAB Format)
(3) Assessed Fiscal
Risk of State Government Guarantees
(4) Off-Budget Borrowings
of State Governments
(5) Liabilities of
State Government Public Sector Undertakings
(6) Other Implicit
Liabilities of State Governments (including pension liabilities).
An additional Statement on Subsidies
provided by the State Government may also be provided as indicated in para 4.15.
5.8 The format of Statements
1 to 7 is given below. It is recommended that Statements (1) (alongwith the
Annexes) and (2) may be published in the budget documents of the State Governments
with effect from the fiscal year 2006-07. The remaining Statements
should be published by the State Governments as soon as possible. In case it
is not possible to bring out all the remaining Statements at the same time,
a graduated approach for publication could be adopted. Information provided
in the format of Statements 1 to 7 would ensure uniformity of practices of compiling
data on liabilities across State Governments as well as enhance fiscal transparency.
The Group recognizes that there are widely differing views on the inclusion
of various implicit liabilities in order to obtain the aggregate liabilities
of the State Governments, on which a consensus may emerge over a period
time. Priority may, however, need to be accorded to the task of collating
and publishing data on the different parameters, as set out in Statements 1
to 7, which should be available with the State Governments. Once the
modalities for collating and publishing information on the various liabilities
(both explicit/budgetary and implicit) of the State Governments as well as on
the associated fiscal risks of the implicit liabilities get firmly entrenched,
policy makers and researchers would be provided the option of progressively
including various implicit liabilities (guarantees, off-budget borrowings, pensions,
etc), or their risk-weighted component, in order to obtain a more comprehensive
picture of the overall liabilities of State Governments. Efforts to build up
a consensus on the inclusion of such implicit liabilities could then be expedited.
Statement 1: Budgetary Liabilities
of the State Government (outstanding at end-March)
|
|
|
Accounts @
|
Accounts @
|
Revised Estimate
|
Budget Estimate
|
|
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
|
|
|
|
|
|
1
|
Consolidated Fund
|
|
|
|
|
I
|
Public Debt
|
|
|
|
|
a
|
Open Market Borrowings (Net SLR based market
borrowings)
|
|
|
|
|
b
|
Borrowings from Banks and FIs/Negotiated
Loans
|
|
|
|
|
c
|
Special Securities issued to NSSF
|
|
|
|
|
d
|
Bonds/Debentures which are issued by the
State Government
|
|
|
|
|
e
|
Loans from the Centre (net)
|
|
|
|
|
|
Plan
|
|
|
|
|
|
Non-Plan
|
|
|
|
|
f
|
Others (Specify) *
|
|
|
|
|
II
|
Ways & Means Advances & Overdrafts
from RBI or any other bank
|
|
|
|
|
a
|
- WMA
|
|
|
|
|
b
|
- OD
|
|
|
|
|
2
|
Public Accounts
|
|
|
|
|
a
|
State Provident Funds
|
|
|
|
|
b
|
Small Savings, Insurance and Pension Funds,
Trust and Endowments, etc.
|
|
|
|
|
c
|
Other Items in Public Accounts
|
|
|
|
|
|
of which:
|
|
|
|
|
i
|
Deposits
|
|
|
|
|
|
-Bearing Interest
|
|
|
|
|
|
- Not bearing interest
|
|
|
|
|
ii
|
Reserve Funds/Sinking Fund
|
|
|
|
|
|
- Bearing Interest
|
|
|
|
|
|
- Not bearing interest
|
|
|
|
|
3
|
Contingency Fund
|
|
|
|
|
|
|
|
|
|
|
4
|
TOTAL LIABILITIES (1+2+3)
|
|
|
|
|
|
|
|
|
|
|
5
|
Memo Items
|
|
|
|
|
a
|
Remittances
|
|
|
|
|
b
|
Suspense and Miscellaneous
|
|
|
|
|
c
|
Appropriation to Contingency Fund
|
|
|
|
|
d
|
Decrease in Cash Balance
|
|
|
|
|
@ It may be noted that ‘Accounts’
data are un-audited. The same footnote applies in the case of the remaining
Statements.
* This should include liabilities
of SPVs in respect of which it is a priori indicated that the repayment
and/or interest payment would be met by the State Government from the provisions
in its budget (Please see para 5.3 of the Report). This could also include the
risk-weighted component of guaranteed liabilities of the State Government.
ANNEX 1: Open Market Borrowings
|
Name of Loan
|
Date of Maturity
|
Outstanding Amount
|
Original Maturity (years)
|
Residual Maturity (years)
|
|
|
|
|
|
|
|
|
|
|
11 % State Development Loan
2010
[The International Securities Identification
Number (ISIN) may also be indicated]
|
1.05.2010
|
500
|
8
|
5
|
|
(for illustration)
|
|
|
|
|
|
|
|
|
ANNEX 2: Loans from the Centre |
|
|
|
|
|
|
Name of Loan |
Date of Maturity |
Outstanding Amount |
Purpose of Loan |
Original Maturity(yrs) |
Residual Maturity (yrs) |
|
|
|
|
|
|
Plan Loans |
|
|
|
|
|
11 % Loan 2010 |
1.05.2010 |
500 |
Central Plan Scheme |
8 |
5 |
|
(for illustration) |
|
|
|
|
|
|
|
|
|
|
Non-Plan Loans |
|
|
|
|
|
|
|
|
|
|
|
11 % Loan 2010 |
1.05.2010 |
500 |
Relief for Natural |
8 |
5 |
|
(for illustration) |
|
Calamities |
|
|
|
|
|
|
|
|
ANNEX 3: Details of Borrowings from Banks/Financial Institutions
|
Distinguishing Loan
Number and Rate of Interest
|
Name of Institutions
Extending the loan
|
Date of Maturity
|
Amount
|
Purpose of Loan
|
Status of consent from
Centre under Article 293 (3)
|
|
|
|
|
|
|
11 % Loan 2010
|
IDBI
|
1.05.2010
|
500
|
Irrigation
|
Yes/No
|
|
(for illustration)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANNEX 4: Details of Special Securities Issued to NSSF |
Year |
Amount Issued
During the Year
|
Rate of Interest |
Amount Repaid
During the Year
|
Outstanding Amount
at the end of the Year
|
|
500 |
12.0 % |
100 |
1400 |
|
(for illustration) |
|
|
|
|
|
|
|
|
Statement 2: Details of Guarantees
Issued by the State Government (GASAB Format)
Ministry/ Department/
Beneficiary
|
Loan holder etc.
|
Authority for guarantee
|
Amount & Purpose
of loan etc.
|
Extent of guarantee -
principal interest etc. *
|
Period of validity
|
Details of
reschedule etc.
|
Details of securities pledged
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
|
|
|
|
|
|
|
|
Guarantees
outstanding
at the beginning
of the period
|
Addit
-ions
|
Deletion
(other than
invoked)
|
Invoked
Disch-arged|
Not dis-char-ged
|
Outstanding Principal,
interest, etc.
at the end of the
period*
|
Guarantee
Commission
Recei- vable
Received
|
Other conditions
& compliance
|
9
|
10
|
11
|
12 13
|
14
|
15
|
16
|
17
|
|
|
|
|
|
|
|
|
* Rate of interest guaranteed in
case of loans, debentures, etc. is to be given.
Statement 3: Assessed Fiscal Risk
of the Guaranteed Liabilities of the State Government
Ministry/Department/
Beneficiary
|
Amount
|
Period of
Validity
|
Risk Category/
Weight
|
Present Value of Likely
Devolvement of Guarantee
|
|
|
|
|
|
|
|
|
|
|
Statement 4: Off-Budget Borrowings
of the State Government
|
Accounts @
|
Accounts @
|
Revised Estimate
|
Budget Estimate
|
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
|
|
|
|
|
Statement 5: Liabilities of State
Government Public Sector Undertakings
|
Accounts @
|
Accounts @
|
Revised Estimate
|
Budget Estimate
|
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
|
|
|
|
|
Statement 6: Other Implicit Liabilities
of the State Government (Including Pension Liabilities)
|
Accounts @
|
Accounts @
|
Revised Estimate
|
Budget Estimate
|
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
|
|
|
|
|
Statement 7: Subsidies provided
by State Government
|
Accounts @
|
Accounts @
|
Revised Estimate
|
Budget Estimate
|
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
|
|
|
|
|
d. Institutional arrangements
5.9 It is proposed that all
the data relating to the liabilities of State Governments may be published in
the budget documents of the respective State Governments. The State Governments
should also bring out quarterly, if not monthly reports on their accounts and
liabilities. It may be noted that data to be provided in the Statements 1 to
7 relate to three years viz., the budget estimates of the current year,
revised estimates of the previous year and ‘accounts’ data of the year before.
It may also be noted that these ‘accounts’ data provided in the budget documents
are un-audited figures and that ideally, audited data should be used which would
ensure comprehensive accuracy of the relevant magnitudes. As indicated in para
2.4, timely availability of audited data on State Government budgetary
transactions, however, continues to be beset with some difficulties, which need
to be addressed by the concerned entities at the earliest. The CAG may also
compile and publish the audited data on liabilities in addition to the
Finance Accounts of the States. The Group, however, suggests that the non-availability
of audited data should not delay the reporting of data on liabilities as per
the ‘accounts’ (un-audited), revised estimates and budget estimates of the latest
years.
5.10 In order to facilitate
the process of data compilation, the Group recommends the following:
a) RBI will provide the data on
outstanding market borrowings to the State Governments.
b) The Central Government may provide
the details regarding the loans from Centre to the State Governments as also
Special Securities issued by the States to NSSF.
c) The data on borrowings from banks
and financial institutions and any other such transactions may be provided
by the State Governments.
5.11 Till such time that the
State Governments are not in a position to publish the requisite data on their
outstanding liabilities in their budget documents, all the above data may be
furnished by the concerned institutions to the RBI, as a transitional measure,
to enable consolidation and publication. As alluded to earlier, the RBI’s annual
Study on State Government provides, inter-alia, State-wise detailed data
on the budget estimates of the current fiscal year, the revised estimates of
the previous year and the ‘accounts’ (un-audited) data of the year before. This
is the only publication to provide such updated data in respect of all the
State Governments on a regular and timely basis. Keeping this in view, the Group
recommends that the RBI should compile the (latest available) ‘accounts’ (un-audited)
and (revised and budget) estimates of liabilities of all the State Governments
and publish the same in its regular annual publication on State Budgets, from
the viewpoint of data dissemination and to facilitate academic and policy research.
The CAG may provide the latest available audited data on liabilities
and the same could also be reported by the RBI in its annual study on State
budgets, alongwith the ‘accounts’ (un-audited) and the revised estimates and
budget estimates of more recent years.
References
1. Buiter, Willem H. and Urjit
R. Patel (1992): 'Debt, deficits, and inflation: An application to the
public finances of India', Journal of Public Economics, Volume 47,
Issue 2, March 1992, Pages 171-205.
2. CAG (2002): State Finances
- A Critical Appraisal (1997-98 - 2001-02), International Centre for Information
Systems and Audit, Office of the Comptroller & Auditor General of India.
3. CAG (2004): State Finances
– A Critical Appraisal, International Centre for Information System and
Audit (ICISA), Office of the Comptroller & Auditor General of India, October.
4. CAG (199 ): Combined Finance
and Revenue Accounts of the Union and State Governments in India for the Year
1991-92, CAG, New Delhi.
5. CAG (2004): Combined Finance
and Revenue Accounts of the Union and State Governments in India for the Year
1996-97, CAG, Delhi.
6. Dholakia, Ravindra H. (2003):
'Measurement Issues in Comparing Fiscal Performance of States,' Economic
& Political Weekly, Vol.38, No.10, March 8
7. Dholakia, Ravindra H. and Karan
Navendu (2004): Consistent Measurement of Fiscal Deficit and Debt of States
in India, Working Paper, IIM, Ahmedabad.
8. --------------- (2005): 'Consistent
Measurement of Fiscal Deficit and Debt of States in India', Economic
and Political Weekly, June 18, 2005.
9. Eleventh Finance Commission
(2000): Report of the Eleventh Finance Commission.
10. Twelfth Finance Commission
(2004): Report of the Twelfth Finance Commission
11. Government of India: Major
and Minor Heads of Accounts of Union and State Governments, Ministry of
Finance, New Delhi.
12. Gurumurthi, S (2002): 'Twelfth
Finance Commission and States' Debt Burden', Economic & Political
Weekly, October 5, 2002
13. IMF (2001): Government Finance
Statistics Manual, International Monetary Fund, Washington.
14. Rajaraman, Indira and Abhiroop
Mukhopadhyay (1998): 'Sustainability of Public Domestic Debt in India',
NIPFP, mimeo.
15. Rangarajan C. and D.K. Srivastava (2003): 'Dynamics
of Debt Accumulation in India: Impact of Primary Deficit, Growth and Interest
Rate', Economic and Political Weekly, November 15, 2003.
16. --------------------------------------------
(2005): 'Fiscal Deficits and Government Debt – Implications for Growth
and Stabilisation', Economic and Political Weekly, July 2, 2005.
17. RBI (2004): State Finances:
A Study of Budgets of 2004-05.
18. State Governments: Finance
Accounts, various States.
|