Show subsidies in budget, CAG to govt

NEW DELHI: The Comptroller and Auditor General of India (CAG) has told the Centre its policies of deferred subsidy payments to oil and fertiliser companies are not fair and transparent. The government has been issuing bonds to these companies in lieu of the subsidy it is supposed to pay to them. The CAG has told the finance ministry if it wants to subsidise loss-making companies, then it should provide the subsidy upfront and take a hit in its annual financial statement rather than continuing with its fiscal indiscipline.

���We have written to the government that issuing oil and fertilizer bonds is not fair and transparent. Issuing bonds without a provision for resources to meet the future obligation transfers the burden to the next generation,��� Comptroller and Auditor General of India Vinod Rai told ET. ���Making our children foot the bill for us is against inter-generational equity and financial discipline,��� he said.

The government issues oil and fertilizer bonds and only pays the interest now and the burden of paying back the debt lies with a government in the future when these bonds come up for redemption.

These bonds help companies raise funds. This mechanism does not impact current budgetary deficits. The government only pays the servicing cost of this debt that firms raise. Mr Rai said a viable way for the government to help companies is to give them subsidies directly and treat it as a liability.

In the 2008-09 budget, the government disclosed the amount of bonds issued to fertilizer and oil companies as a foot note and not directly under the head expenditure. Recognising this as expenditure would have negatively affected the fiscal deficit. Finance minister P Chidambaram said in his speech significant liabilities of the government on account of oil, food and fertilizer bonds were currently below the line and the fiscal and revenue deficits were understated to that extent. He, however, has asked the 13th finance commission to suggest a road map for including the subsidy in the budget.