H1 spend: Farm and rural ministries record huge jump

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November 4, 2020 2:00 AM

Overall budget expenditure in April-Sept was flat on year, spending seen picking up in H2

Expenditure by defence ministry, which has a large outlay of Rs 4.71 lakh crore for FY21, saw 11% y-o-y decline in spending in H1FY21 at Rs 2.33 lakh crore. The roads ministry also reported expenditure decline of 11% on year at Rs 45,929 crore in H1FY21.

Extraordinary situations call for extraordinary measures. Two ministries – rural development and agriculture – have stood apart from the rest with huge annual increases of 75% and 30%, respectively, in their budgetary expenditures in the first half of the current financial year, even as the Centre’s overall Budget spending during the period remained flat on year and its capex declined by 12%.

The rural employment guarantee scheme and PM-Kisan, the efficient income transfer scheme for farmers, have respectively been the principal drivers of spending by the two ministries, as the government relied on these handy schemes to avert a catastrophic rural distress during the pandemic period and provide timely relief to the needy, including the returnee migrant workers.

According to the Controller General of Accounts (CGA) data reviewed by FE, the rural development ministry managed to spend Rs 1.25 lakh crore in April-September this year, which was over 100% of Budget outlay for the ministry for the whole of 2020-21 (FY21). Similarly, the agriculture ministry released funds to the tune of Rs 71,135 crore in H1FY21, while its outlay for the entire FY21, as per the Budget Estimate (BE), is Rs 1,42,762 crore.

The only other large ministry, which has managed to stick to the budgeted spending pattern, is the ministry of health and family welfare, given its direct and active role in tackling the unprecedented healthcare crisis, in co-ordination with state governments and other agencies. As regards all other ministries, including the all-important defence ministry, whose spending modes are less amenable to even fiscal vicissitudes, H1 spending turned out to be much less than what the Budget would have warranted (see chart). All this shows the comprehensive expenditure re-priotisation being implemented by the government during this uncertain times; of course, the spending capacity of ministries have been undermined by the nationwide lockdown that followed the pandemic’s rapid spread since March.

The fiscal stimuli announced so far have an estimated budgetary cost of Rs 2.4 lakh crore. This is rather modest, not only compared to world standards, but in relation to the size of India’s economy. The spending curbs enforced on government departments for the April-December period is estimated to result in savings of nearly Rs 4 lakh crore. The government still has considerable room for unveiling another round/s of stimulus, without altering the estimated budget size for the year or the enhanced gross borrowing limit of Rs 12 lakh crore.

HSBC Global Research wrote: “The pace of expenditure could pick up as lockdown-related restrictions ease and additional fiscal support is implemented. We estimate the central government fiscal deficit at 8.2% of GDP in FY21, versus 3.5% budgeted”.

There are indications that the government will stimulate the economy with accelerated budget spending in H2. While there are signs of a pick-up in demand in several sectors and relatively robust rural consumption, economists are wary of the durability of the incipient revival, post the festive season.

While finance secretary Ajay Bhushan Pandey told FE recently that the government was closely monitoring the ground situations in each segment of the economy and would address their needs “at an appropriate time”. The focus, he added, was now on creating jobs and encouraging investments. Batting for more fiscal spending, Chief economic adviser Krishnamurthy V Subramanianan said in mid-October that a boost to infrastructure and employment-related programmes like creation of an urban job guarantee programme would help pep up consumption demand. There is clearly an emphasis on higher spending by CPSEs as even state governments have curbed spending due to acute revenue constraints.

The government has already increased the FY21 budget outlay for MGNREGS to Rs 1,01,500 crore from initial outlay of Rs 61,500 crore. Under PM Kisan, Rs 39,300 crore has been released so far this fiscal, as against the BE of Rs 75,000 crore for FY21.

The human resources development ministry, which oversees school and higher education, saw a whopping 39% on year decline in spending at Rs 30,942 crore in H1FY21. Spending by housing and urban affairs ministry, which includes flagship PM Awas Yojana (urban) and smart cities mission, reported 34% decline in spending at Rs 15,001 crore in H1FY21. Expenditure by defence ministry, which has a large outlay of Rs 4.71 lakh crore for FY21, saw 11% y-o-y decline in spending in H1FY21 at Rs 2.33 lakh crore. The roads ministry also reported expenditure decline of 11% on year at Rs 45,929 crore in H1FY21.

The Centre’s tax revenues contracted 22% y-o-y in April-September versus budget estimate of a positive 21% growth for the full year. Within this, direct tax growth fared worse than indirect tax growth (31% and 12% y-o-y contraction, respectively).

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