Despite a likely sequential rise in the second quarter of the current financial year, the Centre’s spending pace in the first half of the year could still lag the year-ago level, official sources indicated. This is partly because spending in the new or revamped schemes announced in the interim Budget will take a while to gather pace.
Similarly, the disbursement from the Rs 75,000-crore reform-tied loans to states, which account for 58% of the interest-free capital expenditure loans of Rs 1.3 trillion earmarked for FY25, is likely to materialise only in the second half of the fiscal.
The Centre’s revenue position has been boosted by the record dividend of Rs 2.11 trillion from the Reserve Bank of India (RBI) against the budget estimate of Rs 80,000-90,000 crore. This has provided an extra fiscal space of 0.4% of the gross domestic product (GDP). If additional expenditures are not undertaken proportionately, the fiscal deficit for the current year would turn out to be below 5% of GDP against the interim Budget target of 5.1%. However, it is unclear if the Centre will budget for a lower fiscal deficit for FY25 in the coming Budget. The government may choose not to give out the message of any slowdown in Budget spending.
The government will nudge the departments to speed up spending within the limits allocated in the Vote on Account approved by Parliament on February 1, 2024. “There are no restrictions as such except for vote on account limits which everyone has to adhere to till the regular budget is passed,” a senior official said.
While the government expenditure will improve in Q2 of the year, the fact that the contours of several new schemes will still have to be defined, and the monsoon period may keep a leash on the overall capital expenditure in Q2, the sources explained. That could, in turn, rein in H1 expenditure this year below 47.1% of the annual target achieved in the year-ago period.
A sharp decline in capital expenditure amid the election season, higher-than-budgeted growth in tax revenues and the RBI dividends enabled the Centre to rein in the fiscal deficit in April-May at 3% of the budget estimate for FY25. In the corresponding period of the previous fiscal, the deficit was 11.8% of the respective annual target.
The Centre’s capex halved in May to Rs 44,390 crore, while revenue expenditure fell a third on-year to Rs 2.33 trillion. As a result, the total expenditure was 13.1% of the annual target of Rs 47.66 trillion compared with 13.9% of the relevant target in the year-ago period.
“The government spending is likely to pick up sequentially in Q2 compared with Q1,” said Icra chief economist Aditi Nayar.
On June 10, the Cabinet approved assistance to construct 30 million additional rural and urban houses under the Pradhan Mantri Awas Yojana (PMAY). The contours of the revamped PMAY-rural and PMAY-urban will likely be spelt out in the regular Budget for FY25 later this month.
FE had reported earlier that under the revamped (PMAY-Gramin), the cash support will likely be enhanced to around Rs 2.3-2.4 lakh/housing unit from Rs 1.2-1.3 lakh in the previous scheme, due to cost escalation.
The Centre will also launch a revamped PMAY-urban, keeping in mind the escalation in costs. Accordingly, it may unveil a new Rs 60,000-crore interest subsidy scheme for the urban poor and middle class for five years. It may offer interest subvention of 3-6% per annum on home loan amounts up to Rs 5 million, up from Rs 1.8 million in the earlier scheme.
Similarly, the government announced in the interim Budget that it will be giving a concessional window of financing of around Rs 1 trillion over five years to companies that can take Indian technology for their product development. This would reduce risks for firms because they could get long-term loans at low or nil rates of interest with a moratorium, etc. However, the scheme is still under development and would likely see some expenditure in the second half of the current fiscal.
Of the Rs 1.3-trillion interest-free capex support provided for states in the interim Budget for FY25, Rs 55,000 crore in untied capex loans, rolled out from April 1. While disbursement from the untied portion has begun, sanction and disbursement from the tied portion of Rs 75,000 crore would be delayed this year as reforms to be undertaken by states are likely to be intimated to states after the regular Budget. In H1FY24, the Centre had disbursed around Rs 56,000 crore in capex loans to states. Till June 20 this year, such loan disbursements were Rs 10,000 crore.