Finance Ministry puts a leash on expenses in times of Covid : 05-06-2020

New Delhi: The finance ministry has barred all ministries and departments from proposing new schemes in FY21, barring those announced under the Pradhan Mantri Garib Kalyan Yojana and the Atmanirbhar Bharat Abhiyan, to cope with spending needs due to the Covid-19 crisis amid an economic slump. Schemes already approved for this fiscal year have also been put on hold until the end of March 2021 as per the latest directive from Department of Expenditure in the finance ministry that ET has seen. “It may be appreciated that in the wake of Covid-19 pandemic, there is an unprecedented demand on public financial resources,” the directive said.

“There’s a need to use resources prudently in accordance with emerging and changing priorities,” it said. The government’s tax revenues have fallen because of the lockdown imposed to curb the outbreak, putting further strain on the budget. This is the second such expenditure check due to the coronavirus outbreak after curbs on spending in the first quarter were announced on April 8. First-quarter spending by most ministries and departments was restricted to 15-20%. This was followed by a freeze on dearness allowance increases for government employees.

The government has raised its borrowing target for the current year to Rs 12 lakh crore from Rs 7.8 lakh crore estimated in the budget. Additional spending on account of relief packages announced to counter the social and economic impact of the Covid-19 outbreak is pegged at 1% of GDP by experts. The latest move has come after the expenditure department continued to receive many new proposals for ‘inprinciple’ approval. The ministry has disallowed the release of additional funds through budgetary provisions by re-appropriation to schemes that do not comply with the order. “This shows the fiscal constraint the government is facing,” said NR Bhanumurthy, professor at the National Institute of Public Finance and Policy.

Revenues are going to fall sharply and, given the situation, this is one way of containing expenditure, Bhanumurthy said. “It means they are not going to spend on anything they passed in the FY21 budget announced in February,” he said. The fiscal deficit swelled to 4.6% of GDP in FY20, exceeding the 3.8% target. Experts project this year’s deficit will widen to 6-7% against a target of 3.5%. Economists have called for a re-evaluation of the budget numbers considering the drastic change in the situation between now and four months ago due to the coronavirus outbreak.

Source : PTI