Govt lifts expenditure curbs on select ministries, departments

the curbs were imposed in June to prioritise the government’s cash flow after the second wave of the pandemic

The government on Friday lifted expenditure curbs on ministries and departments amid robust revenue collections, and allowed them to front-load public spending in order to boost the economy. The Union finance ministry had imposed the curbs in June to prioritise the government’s cash flow after the second wave of Covid-19 pandemic.

The decision has been taken to increase government spending ahead of the festive season. (Pradeep Gaur/ Mint)

The finance ministry issued an order on Friday, withdrawing restrictions capping expenditure maximum 20% of the budget estimates in the second quarter (July-September) with immediate effect. The order allows ministries and departments to spend the entire amount of their approved monthly expenditure starting immediately. The government’s spending contracted by 5% in the first quarter of the year (April-July). Analysts expect the withdrawal of curbs to accelerate government spending, and consequently growth, in the remaining part of 2021-22.

The move comes at a time when net direct tax collections in the current financial year (up to September 22, 2021) saw an annualised growth of 74.4% at ₹5.70 lakh crore, which is also 27% higher than ₹4.49 lakh crore collected in 2019-20, according to latest data issued by the finance ministry.

Indirect tax collections, a weathervane of economic health, also jumped over ₹1 lakh crore in two consecutive months (July and August) after plunging below the benchmark in June ( ₹92,849 crore) because of the second wave that hit India in April and May this year. The June collection figure indicates the volume of business transactions that took place in May.

The decision has been taken to increase government spending ahead of the festive season in a move to boost the economy and encourage private expenditure, one official aware of the development said requesting anonymity.

In an interview with Hindustan Times on Tuesday, finance minister Nirmala Sitharaman said, “I’m happy to see recovery; at this stage we want to have very positive signs from all segments so that mutually they create this thing called sentiment. If sentiment becomes positive, it creates a multiplier effect.”

The June order exempted ministries and departments dealing with health, agriculture, fertilisers, pharmaceuticals and food from austerity drive. Activities such as pension payments, interest payments and transfer of funds to states were also outside the curb.

Meanwhile, the government is also emphasising on frontloading capital expenditure. According to DK Srivastava, chief policy advisor at consultancy firm EY India, the government’s capital expenditure grew by 26.3% in the first quarter of current financial year even as revenue expenditure contracted by 2.4%.