According to the official, even if some more relief measures are unveiled in the wake of the third Covid wave, the deficit could be reined in at 7% or thereabouts.
The scope for a big fiscal expansion is ‘limited’ in the current financial year, finance secretary TV Somanathan told FE on Tuesday. Even with the relief package announced recently, the fiscal cost of which is estimated at around Rs 1.5 lakh crore, the fiscal deficit target of 6.8% of GDP for 2021-22 would be adhered to, given the possibility of revenue receipts exceeding the budget estimate and expenditure rationalisation being undertaken, he said. According to the official, even if some more relief measures are unveiled in the wake of the third Covid wave, the deficit could be reined in at 7% or thereabouts.
The secretary’s assessment discounts chances of additional substantive stimulus or relief packages through the course of the current finaicial year. In FY21, the Centre had ended up reporting fiscal deficit of 9.3%, the highest level since 1990-91, against the originally projected 3.5% (Budget Estimate), thanks to a series of stimulus packages and welfare measures, including cash transfers announced in the wake of the pandemic.
“Cash transfers when the economic activities are suppressed primarily lead to savings, rather than consumption… so we do have to be prudent with our resources,” Somanathan said. Many analysts see the absence of a consumption booster for the economy as the spending on reliefs is being offset by expenditure control measures.
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 Rs 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.
Somanathan said that even though there were “some concerns” about disinvestment programme due delays on account of Covid-19, he was still hopeful that the FY22 disinvestment receipts would be close to the target of Rs 1.75 lakh crore.
“As regards the general economic growth and consumption demand, our considered view is that it is directly correlated to the level of reopening of economic activity. Simply injecting cash when the economic activity is suppressed by restrictions only leads to saving not spending,” the official reiterated. He, however, added that the government could bring in more relief measures ‘if needed’ depending on the impact of the likely third wave of Covid-19.
As part of the stimulus measures in FY21, the government transferred about Rs 31,000 crore to Women Jan Dhan account holders as Covid relief. But, a substantial part off this reportedly remained parked in those accounts for longer periods.
“So we feel that at this time around, the best measure for promoting growth is a stepping up of capital expenditure,” Somanathan said, adding that the government’s capex momentum was sustained in the first three months of FY22.
On the revenue front, the official said he was hopeful that the union government’s net tax receipts could be in excess of the target of Rs 15.45 lakh crore (an increase of 8.5% over actual of FY21). “This year our intention is to complete disinvestment of Air India, BPCL, IDBI bank and listing of LIC,” Somanathan said. On non-tax side, there was some comfort on account of nearly Rs 50,000 crore extra surplus transfers from RBI than budget for FY22.
The Union government’s vaccine expenditure could remain around Rs 40,000 crore in FY22, the official said, adding that it could rise by another Rs 5,000-10,000 crore.
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.