The departments which will now have to restrict the overall expenditure within 15% of BE Q2FY21 include commerce, industry, telecom, defence (civil), housing & urban affairs, school & higher education, water resources, drinking water, labour, MSME and skill development.
The curbs on certain regular but not-so-unavoidable budgetary expenditure imposed on the central ministries for June quarter has been extended to the second quarter of this fiscal also, in a move that will let the Centre rein in overall budget spending and reduce the yawning fiscal slippage. According to official sources, many ministries and departments have been directed to keep their Q2 spending at 15-20% of the full-year outlay, against the usual pattern of around 25%. This is even as certain additional non-budgeted spending will be undertaken by them under the fiscal stimulus package.
“Considering the need to effectively manage the cash flows of the government, it has been decided to retain and continue with the same expenditure management measures in Q2, as was applicable for Q1 of FY21,” the expenditure department said in an office memorandum to ministries and departments.
FE had estimated that a similar directive issued for Q1 expenditure enabled the Centre to save Rs 1.4 lakh crore. Assuming a similar savings in Q2 also, the expenditure re-prioritisation will entail savings to the tune of Rs 2.8 lakh crore in H1, almost the same as the extra budgetary cost of the fiscal stimulus measures announced so far. The budget estimate of total expenditure in FY21 is Rs 30.4 lakh crore.
Many have estimated that the Centre’s fiscal deficit in FY21 could be 7-8% of the gross domestic product, as against 3.5% budgeted, even for maintaining the budgeted level of expenditure. The widening of the deficit as a fraction of GDP is due to a big slippage likely of the revenues and a now-certain steep fall in nominal GDP size, compared to the budgeted level.
The Centre’s fiscal deficit during the first two months of this fiscal stood at Rs 4.66 lakh crore or 58.6% of the Budget Estimate (BE) of Rs 7.96 lakh crore as against 52% of the respective annual target in the last fiscal. This was even as the year-on-year growth in the Centre’s total budgetary expenditure fell 0.2% year-on-year to Rs 5,11,841 crore in April-May 2020, compared with a growth of 21% in April. On the receipts side, big shortfalls occurred in both tax and non-tax inflows in April-May.
Net tax receipts (after mandatory transfers to states) declined 71% to Rs 33,850 crore in the first two months of FY21 against the required growth rate (BE FY21 against FY20 actuals) of 21%. Besides extending the expenditure curbs to Q2, 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 next 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 expenditure department said, adding that ministries/departments should take utmost care not to bunch up expenditures/releases in a bid to improve their pace of expenditure.
The departments which will now have to restrict the overall expenditure within 15% of BE Q2FY21 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 BE in Q2FY21 include fertilisers, posts, pension, defence services (relaxations can be given depending on emerging security concerns), 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 July and 6% each in August and September.
After the revision of the Centre’s borrowing programme, its fiscal deficit for FY21 stands at 5.7% of GDP, against budgeted 3.5%. It is not clear at this stage whether the budgeted expenditure of Rs 30.4 lakh crore will actually be exceeded and by how much. It may be noted the government ended up reporting a deficit of 4.6% of GDP in FY20, sharply higher than 3.3% projected.