Government Spending Skewed Towards Rural, Health Sectors During Covid-19 Pandemic

Government expenditure made up a fifth of the country’s GDP in the first quarter of FY21, compared with about 15% a year earlier. Spending grew 11.3% in April-July 2020 over a year ago, according to data by the Controller General of Accounts. While this was higher than the growth rate of 6.7% for the same period last year, it was in line with a growth of 10.1% in government expenditure in FY20.

Revenue expenditure rose 12.2%, while capital expenditure was up just 3.9% in April-July 2020.

Data from the CGA shows that 20 of the government’s ministries and departments saw a rise in expenditure, while 35 saw a contraction during these four months.

Of the major ministries, the Ministry of Labour and Employment saw the sharpest spike in spending, at 150%. Spending by the Ministry of Rural Development rose 145% compared with a year ago, led by the increased budget for the government’s flagship rural jobs guarantee scheme. The allocation for MGNREGA was increased to Rs 1 lakh crore for the year after the pandemic hit.

Both these ministries have used up a larger share of their funds in the April-July period than they did last year. The labour ministry has exhausted 35% of its budget, while the rural development ministry’s spending was at 84% until July, compared with 35% in the same period last year.

Along with communications, agriculture and health, these ministries made up over 20% of the centre’s expenditure in April-July 2020, compared to 12% a year ago.

In an interview to BloombergQuint, Expenditure Secretary TV Somanathan said the government has done a considerable amount of reprioritisation in spending. There is a huge increase in food, rural development, in health and even in transfers to states, he said. So, 11% is the aggregate increase but the increase in specific sectors that have greatest impact on employment, on welfare and on the poor, has been more, he said.

According to N R Bhanumurthy, vice chancellor at Bengaluru B. R. Ambedkar School of Economics, the shift partly reflects government schemes launched after the lockdown. These include the PM Garib Kalyan Yojana, higher outlay on MGNREGA and the Garib Kalyan Rojgar Abhiyaan to name a few.

The shift is also driven by constraints on spending amid the lockdown. While some ministries saw a rise in spending, core ministries such as chemicals, coal, steel, shipping, power, petroleum, road transport and heavy industries saw a decline. Most core industries, with the exception of the railways, saw a fall in actual spending as a percentage of the budget estimate, while the others such as rural development, for instance, saw front-loading in spending, Bhanumurthy said.

Devendra Pant, chief economist and head of public finance at India Ratings & Research, said the change in spending patterns is in line with the requirements of the time.

“Expenditure by ministries related to employment have increased. That explains the higher spending on rural development, labour and employment and agriculture. Health is the need of the hour,” said Pant. He, however, said the fall in spending by the road ministry is surprising since road construction activity remains strong. In contrast, the increase in expenditure by the communication ministry too is not easy to understand since most of the expenditure there comprises of salaries.