Nomura had termed the government plans to spend 1.6% of GDP in Q4 “an ambitious target”, as it requires an 18% y-o-y growth in Q4, compared with 8% in April-December.
After the launch of the ECLGS scheme, credit originations, which peaked in June 2020 to 115 per cent YoY growth rate, contracted to around 20 per cent in September 2020.
Refuting the notion that the Centre may miss the revised expenditure estimate (RE) for FY21, given the need to more than double the spend in Q4 from the year-ago level, expenditure secretary TV Somanathan said on Wednesday that “appetite of the starving ministries” and some ‘lumpy items’ would make the target achievable.
“Past expenditure trends can’t predict Q4FY21 spend. A better indicator will be the sharp pick-up in November (48%) and December (29%). And there are lumpy items like clearance of fertiliser subsidy arrears and release of dues to FCI (shifting below-the-line food subsidy to the Budget), which will all happen in Q4, taking us close to the revised estimate (for FY21),” Somanathan told FE in an interview.
He also drew attention to the fact that next year’s Budget would have a growth of 13% on year (rather than the budgeted less than 1%) if the one-time expenditures incurred in the current year largely due to the pandemic are excluded). “About `4 lakh crore of one-time expenditure is being incurred this year (taking over of NSSF loans of FCI of `1.5 lakh crore, an equivalent amount spent for free-ration for eight months, fertiliser subsidy arrears of `65,000 crore, and `30,000 crore PMJDY transfers). Next year’s expenditure growth needs to be estimated on a base sans these”, the official said.
According to him, “a lot of pent-up demand” for funds from ministries, which were asked to curb spending in the first eight months of this fiscal due to Covid-induced stress on the revenues, would be catered to in Q4. “Of the food subsidy arrears, approximately `1.5 lakh crore was cleared (shifted to Budget) this year and `70,000 crore will be cleared next year. There will still be a balance of about `50,000 crore as on March 2022,” the official said.
Nomura had termed the government plans to spend 1.6% of GDP in Q4 “an ambitious target”, as it requires an 18% y-o-y growth in Q4, compared with 8% in April-December. “Our back-of-envelope calculations suggest the government’s aggressive spending targets for FY21 implies that over January – March quarter, revenue spending would have to escalate by a significant 55% y-o-y, while capex would have to expand by over 60% y-o-y. If the government manages to achieve these goals, it may prove to be a strong tailwind to GDP growth in the quarter,’ Nomura wrote.
Given the Controller General of Accounts (CGA) data released for April-December period, the Centre’s total Budgetary expenditure in the first nine months of the current fiscal was `22.8 lakh crore, which means it will have to spend `11.7 lakh crore in January-March to meet the RE of `34.5 lakh crore. Excluding the lumpy items the secretary mentioned, most of which could be done at the stroke of a pen, the Q4 expenditure would not need to be much higher than `8 lakh crore spent in Q3.
On incentivising the state government to fast-track the sale of stakes in their PSUs, the official said the Centre would work out a mechanism to provide monetary grants to the states in this regard.
On Covid vaccination budget provision of `35,000 crore, Somanathan said the provision is reasonable for 50 crore people (`700/person for two dozes). A funding pattern would be worked out between the Centre and states and accordingly provisions would be made.
He said the outlay of `73,000 crore in FY22 for job guarantee compared with `1.1 lakh crore in FY21 was ‘reasonable’, as the pandemic-induced demand for works in rural areas has begun to taper off.