Expenditure rejig: Q1 spending curbs to help govt save Rs 1.4 lakh crore

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Published: April 15, 2020 5:54 AM

Going by the trend in recent years, the Centre was estimating to collect about Rs 2.45 lakh crore in net tax receipts in Q1FY21, but the actual collections will be very low under the current environment, officials admit.

Less-than-budgeted level of spending may continue for many departments in Q2 as well.Less-than-budgeted level of spending may continue for many departments in Q2 as well.

The spending curbs imposed by the Centre on most government departments will likely reduce the budgetary expenditure in April-June by Rs 1.4 lakh crore or 4.6% of the annual budget for FY21.

It may be noted that the COVID-19 economic package announced by the government on March 26 was of Rs 1.75 lakh crore, with the extra budgetary component of it being about Rs 75,000 crore only (SBI Ecowrap said that of the Rs 1.75 lakh crore package, only “Rs 73,000 crores is new and rest is from current budget”).

Less-than-budgeted level of spending may continue for many departments in Q2 as well. These curbs could offset the additional outlays which the government might require to announce to counter the COVID-19 outbreak and extra financial reliefs likely to be given to the affected segments of population and businesses. However, even these spending curbs are unlikely to suffice to avoid a fiscal slippage in FY21, given the likely huge shortfall in revenues from budgeted levels.

On April 8, finance ministry asked ministries and departments to scale down their Q1FY21 expenditure plans by at least 5-10 percentage points (pps) or 20-40% from the business-as-usual level of 25% of the full-year spending, in view of stress on the Centre’s finances.

The move will likely compress spending on defence, including civil and pension, by Rs 27,500 crore or about 20% of estimated spending in Q1. As for school and higher education, the spending will be less by Rs 16,000 crore of a steep 40%. Spending cuts have also been prescribed for the revenue department (Rs 14,000 crore or 20%) for roads ministry including NHAI (Rs 9,000 crore or 20%) and telecom department (Rs 8,000 crore or 40%).

However, the finance ministry has spared some of the key ministries from expenditure compression measures which are crucial in the fight against coronavirus; interest payments too are intact. The Centre’s total expenditure is budgeted to be Rs 30.4 lakh crore (budget estimate) in FY21, up 12.7% from the revised estimate in FY20.

Going by the trend in recent years, the Centre was estimating to collect about Rs 2.45 lakh crore in net tax receipts in Q1FY21, but the actual collections will be very low under the current environment, officials admit. In business-as-usual scenario, the Centre garners about 15% of annual tax revenues in Q1 of a financial year.

Even after the national lockdown is lifted, business activities might remain subdued in various sectors for a longer period, making budgetary tax and non-tax projections virtually irrelevant for this fiscal.

With tax revenues likely to be hit hard due to COVID-19, the Centre should present another Budget for FY21 after the pandemic is fully contained, former finance secretary Subhash Chandra Garg recently told FE. Since borrowing is likely to be scaled up in the second half of this fiscal than Budget plans suggest, Garg was of the view that the fiscal deficit should be monetised in view of the need to give stimulus to people and companies struggling with massive disruptions in the economic activity.

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