However, the net cash outgo is reined in at just Rs 23,675 crore, as a substantial chunk (Rs 1,63,527 crore) of the extra spending will be met through savings from expenditure compression across several ministries, and enhanced receipts and recoveries.
Three weeks after rolling out a relief package to mitigate the Covid blow, finance minister Nirmala Sitharaman on Tuesday sought Parliamentary clearance for a gross additional spending of `1.87 lakh crore during the current fiscal.
However, the net cash outgo is reined in at just Rs 23,675 crore, as a substantial chunk (Rs 1,63,527 crore) of the extra spending will be met through savings from expenditure compression across several ministries, and enhanced receipts and recoveries. The net outgo is dominated by expenditure proposals for the health sector. Sitharaman laid the statement of the demands, which included 47 grants and one appropriation, in the lower House.
As such, on June 30, the finance ministry asked 81 ministries/departments or organisations to scale down their expenditure plans for the September quarter by at least 5 percentage points (pps) from the business-as-usual level of 25% of the full-year spending, in view of stress on the government’s finances.
Also, spending by most departments is learnt to have remained within 20% of the full-year budget estimate in the first quarter, against the available limit of 25%. The moves helped generate savings for the Centre, of up to Rs 1.15 lakh crore in the first half of the current fiscal as per an FE estimate.
As such, the net fiscal impact of the `6.29-lakh-crore package, announced on June 29, stood at just Rs 1.3 lakh crore in FY22, according to a Nomura estimate, and a sizeable portion of it (Rs 2.68 lakh crore) comprised only credit guarantees.
Of course, a sustained focus on capital expenditure, a likelihood of a gradual increase even in revenue spending in the second half of the year and overall revenue shortfalls could still put pressure on the FY22 fiscal deficit target of 6.8% of GDP. But unless a more savage third wave hits the country and the whole fiscal plans go haywire, the deficit might not overshoot the budgeted level by a wide margin.
Moreover, the possibility of a drop in disinvestment revenue from the ambitious target of Rs 1.75 lakh crore could be partially offset by a generous dividend from the central bank. The RBI has already transferred a surplus of Rs 99,122 crore in FY22, against Rs 57,130 crore last fiscal.
The biggest demand was for the transfer of Rs 1.59 lakh crore to states to help bridge their GST revenue shortfall; this will be released under a back-to-back loan facility. Last week, the Centre released Rs 75,000 crore to the states, or nearly half of the estimated full-year compensation amount, which would improve their liquidity position and enable them to boost capex.
The government has also sought a total of Rs 12,207 crore to meet expenditure to bolster Covid-19 emergency response under the National Rural Health Mission. Another Rs 3,650 crore is sought for various purposes relating to the health ministry. As much as `1,872 crore is earmarked for loans and advances to Air India.
Similarly, the government has sought approval for the allocation of Rs 1,750 crore for compounded interest support to lenders against last year’s loan moratorium. The Centre had announced that retail and small business loans up to `2 crore will get the benefit of compound interest waiver during the moratorium period of March to August 2020. However, subsequently, the Supreme Court allowed the compound interest waiver for all borrowers, irrespective of the size of their loan. It’s not clear if the exact amount of burden the government will share with the lenders.
To provide assistance to sugar mills against its obligation relating to the 2019-20 marketing year, the government also seeks approval for an extra outlay of Rs 1,100 crore.
Aditi Nayar, chief economist at Icra, said the bulk of the gross expenditure pertains to the back-to-back loans for providing GST compensation to the states, which does not affect the Centre’s fiscal deficit. “It appears that the outgo of more than Rs 90,000 crore for the free grain provision in May-November 2021, is being absorbed by the cushion created in this year’s Budget, on account of the prepayment of the FCI’s loans to the NSSF in FY21,” she said.