India is likely to fund roughly $28 billion of its expenditure outlay in its upcoming budget for the fiscal year 2020/21 via off-budget borrowings, said three government sources directly aware of the matter, as it seeks to revive a sagging economy, while keeping its fiscal deficit in check.
Prime Minister Narendra Modi’s government is under pressure to increase spending on rural welfare schemes and infrastructure to boost economic growth that has fallen for six straight quarters.
Off-budget borrowings are a means by which the government keeps its fiscal deficit in check by making quasi-government entities borrow on its behalf, to partly fund its expenditure plan for the year.
This would mark a roughly 13.8% increase in so-called off-budget borrowings from an estimated 1.75 trillion rupees ($24.6 billion) in the ongoing fiscal year, said the three sources, who asked not to be named as the discussions are private.
“We’re facing a serious economic crisis,” said one of the sources, adding there was no alternative but to raise spending on infrastructure and welfare schemes to boost consumer demand and create jobs.
“You should not be surprised if the real deficit touches 4.5% of GDP,” he said, adding the ‘official’ deficit could be kept between 3.5% and 4% of GDP.
“After initial denial of the economic slowdown,” he said the government has realized it needs to take all possible steps to support economic growth.
A spokesman for the finance ministry declined to comment, citing the silent period ahead of the budget speech on Feb. 1.