In order to make room for another tranche of ‘stimulus’ without letting the fiscal deficit for FY21 widen beyond 7-8% of GDP, the Centre has extended the curbs on certain regular, not-so-unavoidable budgetary expenditure to the third quarter.
“With a view to managing the cash flows, it has been decided to retain and continue with the same expenditure management measures, stipulated for Q1 and Q2, for Q3,” the finance ministry said in an office memorandum to other ministries and departments.
This will enable savings of Rs 1.2 lakh crore or thereabouts, according to a rough estimate. Together with similar spending curbs exercised during H1, the savings till December will be to the tune of Rs 4 lakh crore.
Given that the additional budgetary cost of the stimulus measures announced so far is around Rs 3 lakh crore, the latest directive will mean a fiscal space of Rs 1 lakh crore can be created, even as the overall Budget size is maintained at the budgeted level of Rs 30.4 lakh crore. A large par of the ‘fiscal stimulus’ will therefore be just expenditure reprioritisation; any fiscal expansion will likely be minimal.
Analysts have estimated the fiscal deficit for the current fiscal will be double the Rs 8 lakh crore budgeted; a huge revenue shortfall from the budgeted level and a shrinking of the nominal GDP will take the deficit to 7-8% of GDP from 3.5% budgeted, even for the current Budget size, some of them have prognosticated.
Official sources said Q3 spending curbs excluded expenditures pertaining to defence and fertilisers – while defence is usually not amenable to curbs, the decision to not restrict spending on fertilisers (chiefly subsidy) is believed to because the government doesn’t want to cause any hardship to the farming community, sections of which are angered by the new farm laws. Overall, Q3 spending will be 15-20% of the full-year outlay, against the usual pattern of a little over 25%.
The move indicates that the Centre will rein in overall budget spending to minimise the yawning fiscal slippage. The savings from expenditure rationalisation will likely be reallocated for special measures announced so far and additional steps to be announced to stimulate the economy.
Another round of fiscal measures is expected to be announced in October-November to stimulate the economy, which is projected to contract by 10-15%, in real term, by various agencies.
The Centre’s budget spending in July grew just 6% on year, against 46% in June and the budget estimate of 13.2% spending growth for the whole of FY21. The capex in July declined sharply 47% on year. Net tax revenues declined a sharp and unprecedented 40% on year in April-July.
In April-July, even the defence capital and revenue spending was 30% and 34%, respectively, of the budget estimate (BE) for FY21 compared with 37% of the respective BE in the year-ago period, due to curbs imposed on spending in H1FY21.
Besides extending the expenditure curbs to Q3, the Centre has also made it clear to the departments that the amounts that remained unspent in a month or quarter will not be available for automatic carry-forward to the subsequent month or quarter and would require fresh approval of expenditure department. “In this time of acute cash stress, utmost care may be taken to avoid releases that can contribute to idle parking of funds,” the ministry said.
The departments which will now have to restrict the overall expenditure within 15% of BEFY21 in Q3 include commerce, industry, telecom, defence (civil), housing & urban affairs, school & higher education, water resources, drinking water, labour, MSME and skill development. The monthly expenditure of these departments have been capped at 5% of BE.
The departments which will have to contain expenditure at 20% of BEFY21 in Q3 include posts, pension, financial services, revenue, roads and petroleum. Transfers to Union Territories such as Delhi and J&K will also face a similar cut. The monthly expenditure under these heads will be capped at 8% of BE in October and 6% each in November and December.
The government will likely release its borrowing calendar for the second half of this fiscal on Wednesday. It may either keep its full-year target of Rs 12 lakh crore unchanged or resort to only “minor tinkering”. It may choose to tweak its borrowing plans for the second half substantially only by November, when it reassesses its finances for the revised estimates, based on the requirements to stimulate the economy.
The government borrowed Rs 7.36 lakh crore from the market until September 18, which was 81% higher than a year before and represented 61% of the revised, full-year market borrowing limit of Rs 12 lakh crore.
Source : PTI