Slowdown effect: Govt spending on poor slows as economy trends down

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February 24, 2020 6:00 AM

GDP expansion rate fell from 8.2% in FY17 to 7.2% in FY18 and further to 6.8% in FY19.

economy trends, Govt spending, economic growth, PM-Kisan Samman Nidhi, Modi government, Arvind SubramanianThe budget for PM-Kisan in FY20 is Rs 54,370 crore (revised estimate) and Rs 75,000 crore in FY21.

The slowdown in economic growth has undermined the government’s ability to augment expenditure on schemes meant for redistribution and welfare of the poor and the disadvantaged. While there isn’t a clear segregation of ‘pro-poor schemes’ in the Budget, an analysis by FE identifying items of expenditure with purposes of welfare/uplift of the poor showed that growth of such spending nosedived from a robust 25.6% in FY17 and 22% in FY18 to just 2.3% in FY19. GDP expansion rate fell from 8.2% in FY17 to 7.2% in FY18 and further to 6.8% in FY19.

Had the election-bound Modi 1 government not opted for a fiscal slippage of 0.5% to introduce the income support scheme PM-Kisan Samman Nidhi in February 2019, the growth in pro-poor spending would have remained constrained in FY20 also. The budget for PM-Kisan in FY20 is Rs 54,370 crore (revised estimate) and Rs 75,000 crore in FY21.

Launch of PM-Kisan, however, resulted in continued slow growth in conventional pro-poor schemes; such spending stood at Rs 1.76 lakh crore in FY20, up just 6.2% from Rs 1.66 lakh crore in FY19. The budget estimate for pro-poor schemes, excluding PM-Kisan, is just 2.5% in FY21. Of course, if expenditure on PM-Kisan is included, the annual growth in pro-poor spending would be 39% in FY20 and 11% in FY21. Given major expenditure items like interest payments, establishment, Finance Commission grants, which are not amenable to immediate pruning and the commitment to overall fiscal discipline, the additional fiscal space for acceleration of pro-poor spending could be created only by curbing expenditure on explicit subsidies like food and fertilisers by rationalisation and better targeting.

According to former chief economic adviser (CEA) Arvind Subramanian, a quasi-universal basic rural income of Rs 18,000 per year to rural households ( except “demonstrably well-off” ones) and covering 75% of rural population could entail an expenditure of Rs 2.64 lakh crore (at 2019-20 prices).

Subramanian proposed the Centre make Rs 6,000 per household upfront contribution to the scheme (Rs 84,000 crore), but said this must be coupled with elimination or phasing out of schemes such as interest rate subsidy for crop loans, Fasal Bima Yojana, additional MSP or price deficiency scheme and fertiliser subsidy.

Amid huge shortfalls in tax revenue – which is principally attributable to the slowdown in the economy — the government seems to have an effort to minimise its adverse impact on assorted welfare schemes in FY20. It has shifted part of revenue expenditure to off-budget financing route in FY20.

So, allocations for schemes such job guarantee programme (MGNREGP) are slated to be Rs 71,000 crore (RE), up 18% from budget estimate, in FY20. Expenditure on the National Social Assistance Programme, a social security and welfare programme to provide support to aged persons, widows, disabled persons and bereaved families on death of primary bread winner, has more or less remained flat in the range of Rs 8,500-9,000 crore in recent years.

Besides these schemes, the Centre also spends a substantial amount on three major subsidies – food, fertilizer and petroleum — which benefit a large spectrum of the poor. These major subsidies would cost the exchequer Rs 2.27 lakh crore in FY20, up 15% on-year. However, these estimates does not factor in the huge amount of off-budget financing of the Food Corporation of India, which implements the National Food Security Act. In FY20, FCI would borrow Rs 1.1 lakh crore from the National Small Savings Fund (NSSF) to seamlessly carry out its procurement, storage and other operations. FCI’s borrowing from NSSF stood at about Rs 2 lakh crore in FY19 end.

Separately, the Centre’s transfer of assorted subsidies and sops (both cash and in-kind) to the beneficiaries through the direct benefit transfer (DBT) route surged 73% to Rs 3.3 lakh crore in FY19 from the previous year while such transfers have reached Rs 2.18 lakh crore so far in FY20. Harnessing the power of Jan Dhan, Aadhaar and Mobile (JAM), DBT helped in better targeting of beneficiaries and plugging leakages to the tune of Rs 1.7 lakh crore since the platform was launched in FY14.

Besides MGNREGP, the pro-poor schemes tracked by FE for this story included affordable housing (PMAY); social assistance to the weaker section (NSAP); schemes for SCs, STs and other vulnerable groups; Swachh Bharat Mission; mid-day meal, integrated child development services, livelihood mission and health insurance.

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