India Withdraws Spending Curbs For Ministries
After having curbed spending even as revenue recovered, the government has withdrawn caps to regulate expenditure for the rest of the fiscal.
The stipulations to regulate the overall expenditure within 20% of the budget estimate in the quarter ending September were withdrawn with immediate effect, according to a memorandum by the Department of Economic Affairs on Friday. All ministries and departments are now permitted to spend as per their own approved monthly or quarterly expenditure plans, it said.
Instructions regulating expenditure more than Rs 200 crore were also being relaxed for items pertaining to budgeted capex expenditure for FY22.
The Economic Affairs Department, in a circular dated June 30, 2021, had said “it felt essential to regulate quarterly/ monthly expenditure plans of specific ministries and departments” for the second quarter of the ongoing fiscal, keeping in view the evolving situation of Covid-19 and the anticipated cash position of the government.
“The clear upturn in the Government of India’s tax revenue and the anticipated inflows from the National Monetisation Pipeline are likely to have triggered the withdrawal of the extant cash management guidelines,” said Aditi Nayar, chief economist at ICRA Ltd. “With the withdrawal of the expenditure management guidelines, we anticipate that spending will gather pace in the second half of this year, which will be critical to unleash animal spirits and drive a faster recovery in economic activity.”
According to data available until April-July 2021, the government’s total expenditure is running 4.7% below last year. Capital expenditure is up 14.8% but revenue expenditure — the larger share of spending — is down 7%.
The largest cutbacks in percentage terms were primarily on account of lower spending by the Ministry of Rural Development, by way of lower spending on MGNREGA, and the Ministry of Agriculture.
With the modest net fiscal cost of the first supplementary demand for grants, and the expected enhancement in the outlay for fertiliser subsidies for the rabi season as well as for the MGNREGA, the government’s total expenditure is estimated to exceed the FY22 budget estimate by around Rs. 50,000-60,000 crore, according to ICRA. The extra expenditure, however, is likely to be comfortably absorbed by the higher-than-budgeted transfer of surplus by the Reserve Bank of India and the commencement of inflows from the National Monetisation Pipeline, Nayar said.