Government Seeks Parliament Nod To Spend Rs 1.67 Lakh Crore Extra In FY21

The government has sought Parliament’s approval to spend additional Rs 1.67 lakh crore in the current financial year.

The total approval sought by the government is to spend Rs 2.35 lakh crore on a gross basis, of which Rs 1.67 lakh crore would involve a net cash outgo, according to Supplementary Demand for Grants tabled on Monday. The remaining amount would be through savings or reallocation or under-utilisation of funds allocated to other ministries.

The large chunk of this additional spend is for government’s flagship rural employment guarantee scheme MGNREGA, involving an outgo of Rs 40,000 crore as announced in the Aatmanirbhar Bharat package—a post-pandemic financial rescue package. This would take total allocation under the employment scheme to above Rs 1 lakh crore.

India, staring at a GDP contraction in 2020-21 for the first time in more than four decades, is looking to boost economic activity by providing more jobs to migrant labourers who moved from cities to the hinterland after employment dried up amid the Covid-19 pandemic. The nation has also increased market borrowings by over 50% to Rs 12 lakh crore in the current fiscal as the pandemic impacted its revenue.

Besides, the government sought Rs 44,340 crore to provide allocation under the under ‘Post Devolution Revenue Deficit Grant’ to states, according to Supplementary Demand for Grants. Another Rs 2,262 crore will be spent for States Disaster Response Fund as per recommendations of the 15th Finance Commission.

Other additional expenditures include:

• About Rs 6,000 crore as grants for Price Stabilisation Fund—that helps to regulate the price of agri commodities—run by the Ministry of Consumer Affairs, Food and Public Distribution.
• Rs 10,000 crore on Decentralized Procurement Scheme under the National Food Security Act. Under the scheme, states purchase and distribute rice and wheat and the central government pays for the expenditure incurred by them.
• Rs 6,852 crore for containment of the Covid-19 pandemic.
• Rs 2,475 crore for creating capital assets for Emergency Epidemic Preparedness and Response for Indian Council of Medical Research.
• Rs 3,874 crore for payment of salaries, procurement of supplies, emergency epidemic preparedness and response.

The large additional net cash outgo partly comprises new items announced under the fiscal support plan, stepped up health expenditure, and some items that were under-budgeted earlier such as the revenue deficit grants as recommended by the 15th Finance Commission, said Aditi Nayar, vice-president at ICRA Ltd.

“The extent to which savings can be found vide the expenditure management measures that were put in place, will contribute to determining the eventual fiscal outcome for FY21 in light of the ongoing revenue shock of around Rs 6.0 trillion (Rs 6 lakh crore),” Nayar said in a note. “Our baseline expectation is now that the Government of India's fiscal deficit will widen to at least Rs 14 trillion (Rs 14 lakh crore) or 7.4% of GDP in FY21.”

Recapitalising Public Sector Banks

The government has sought Parliament's permission to infuse Rs 20,000 crore in public sector banks through recapitalisation bonds as defaults by borrowers due to Covid-19 is expected to increase their provision costs.

The government in the budget had not made any provisions for recapitalising public sector banks in this fiscal. But the pandemic impacted small businesses and retail borrowers as the economic activity froze during the lockdown to contain the virus’ spread.

The infusion in state-owned banks through recapitalisation bonds will not involve a cash outgo.

Besides, the government sought Rs 4,000 crore as grant for National Credit Guarantee Trustee Co. to provide sovereign guarantee under the Emergency Credit Line Guarantee scheme for small businesses.

Banks have so far disbursed Rs 1.18 lakh crore under the scheme to over 25 lakh micro, small and medium enterprises. The government, too, has provided Rs 500 crore each for settlement of claims on invoking sovereign guarantee under the Partial Credit Guarantee Scheme and Special Liquidity Scheme Trust.