Param IAS

Deficits, Debts and FRBM Targets for 2020-21

Part of: Bihar Budget 2020-21

The Bihar Fiscal Responsibility and Budget Management (FRBM) Act, 2006 provides annual targets to progressively reduce the outstanding liabilities, revenue deficit and fiscal deficit of the state government.

Revenue Balance:

  • It is the difference of revenue expenditure and revenue receipts.
  • A revenue deficit implies that the government needs to borrow to finance its expenses which do not create capital assets.
  • Once the revenue deficit is accounted for, only then the borrowings can be used for capital investments.
  • A revenue surplus implies that the revenue receipts of state are sufficient to meet the revenue expenditure requirements.
  • The budget estimates a revenue surplus of Rs 19,173 crore (or 2.8% of GSDP) in 2020-21.
  • The 14th Finance Commission had recommended that states should eliminate revenue deficit.
  • The 15th Finance Commission did not suggest any revenue deficit grants for Bihar since it has been consistently witnessing a revenue surplus.
  • However, a revenue deficit of 3% of GSDP is estimated in 2019-20 (as per the revised estimates).

Fiscal deficit:

  • It is the excess of total expenditure over total receipts.
  • This gap is filled by borrowings by the government, and leads to an increase in total liabilities.
  • In 2020-21, the fiscal deficit is estimated to be Rs 20,374 crore (2.97% of GSDP).
  • The estimate is within the 3% limit as per the FRBM Act.
  • This limit may be relaxed to a maximum of 3.5%, if the state can contain its debt and interest payments to certain specified levels.
  • In 2019-20, the fiscal deficit is expected to be 9.45% of GSDP as per the revised estimates.

Outstanding Liabilities:

  • Outstanding liabilities is the accumulation of borrowings over the years.
  • In 2020-21, the outstanding liabilities are expected to be 30.1% of the GSDP, lower than 30.2% in 2019-20.
  • This is higher than the average level of outstanding liabilities of 29 states in 2019-20 (24.6% of their GSDP).

Outstanding Government Guarantees:

  • Outstanding liabilities of states do not include a few other liabilities that are contingent in nature, which states may have to honour in certain cases.
  • State governments guarantee the borrowings of State Public Sector Enterprises (SPSEs) from financial institutions.
  • The total outstanding government guarantees at the end of the year 2018-19 is estimated at Rs 5,501 crore (1.1% of GSDP).