The government on Thursday decided to ask the 13th Finance Commission to map the road for achieving fiscal deficit targets by including off-budget subsidies like oil, food and fertiliser bonds estimated at over Rs 100,000 crore (Rs 1,000 billion) in the Budget.
The Union Cabinet took a decision to this effect following an announcement by Finance Minister P Chidambaram in the Budget 2008-09.
"Having regard to the need to bring the liabilities of the central government on account of oil, food and fertiliser bonds into fiscal accounting and the impact of its various other obligations on the deficit targets, the commission may review the road map for fiscal adjustment," Information and Broadcasting P R Dasmunsi told reporters.
Chidambaram in his Budget speech had admitted that fiscal and revenue deficits of the Centre are understated to the extent that liabilities of the government on account of oil, food and fertiliser bonds are off-budget.
There is a need to bring these liabilities into fiscal accounting, he had said.
"As a first step, I have shown these liabilities clearly in Budget at a Glance. I intend to request the 13th Finance Commission to revisit the roadmap for fiscal adjustment and suggest a suitably revised roadmap," he had said.
The 13th Finance Commission is slated to submit its report to the government on October 31, 2009 for a period of five years 2010-15.
With the current practice of taking oil, fertiliser and food bonds off-budget, the fiscal consolidation targets require government to cut fiscal deficit by 0.3 per cent a year to make it 3 per cent by the end 2008-09 and revenue deficit by 0.5 per cent a year to eliminate it by the current fiscal-end.
In its quarterly Monetary Policy review on July 29, the Reserve Bank also cautioned the government against deteriorating the fiscal position due to growing off-budget
"Early fiscal indicators point to some strains on the Centre's fiscal position which has worsened somewhat in relation to Budget estimates," the Reserve Bank of India said.
According to Budget estimates, the revenue deficit is estimated at Rs 55,184 crore (Rs 551.84 billion) this fiscal, which amounts to 1 per cent of GDP, while fiscal deficit is estimated to touch Rs 1,33,287 crore (Rs 1,332.87 billion), 2.5 per cent of GDP.
Economists said if subsidies on food, fertilisers and oil are treated as part of the budget, the true fiscal deficit would cross 5 per cent of GDP against 2.5 per cent targeted in the budget.
RBI noted that in view of the growing off-budget liabilities and enhanced expenditures on subsidies, loan waivers and salaries in the rest of the year, fiscal deficit may go up.
Consequently, fiscal developments warranted "close and careful monitoring" as it would have implications on inflation and external sector management, it said.
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