Govt seeks additional spending of Rs 2.35 lakh crore
A research note by Pranjul Bhandari, chief economist at HSBC Securities and Capital Markets India Pvt. Ltd calculated the additional fiscal impact of the government’s package at Rs 2.1 lakh crore.
The central government, as of now, plans to spend an additional Rs 2.35 lakh crore this financial year. It has sought Parliament’s approval for this amount through a supplementary demand for grants, which was tabled on the first day of the monsoon session on September 14. Out of the gross additional expenditure of Rs 2.35 lakh crore, Rs 1.67 lakh crore is the net cash outgo and Rs 68868 crore is matched by savings of the Ministries/Departments or by enhanced receipts/recoveries, the document said.
The proposed additional expenditure suggests that the exercise is a post-facto approval for the announcements which were made by finance minister Nirmala Sitharaman in the month of May. A research note by Pranjul Bhandari, chief economist at HSBC Securities and Capital Markets India Pvt. Ltd calculated the additional fiscal impact of the government’s package at Rs 2.1 lakh crore.
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“As can be seen, most of these expenditures are part of the announcements made by the government as part of Covid relief and hence these demands are formalization of the process of incurring these expenses. However, the state deficit grant appears to be outside these announcements and hence becomes additional expenditure”, said Madan Sabnavis, chief economist at Care Ratings, adding that his firm now estimates the fiscal deficit at around 8-8.5% of GDP, assuming a marginal fall in nominal GDP from last year.
The net change in central government spending will only be known when the next union budget is presented in February 2020. This is because the government can move more supplementary demands for grants during the course of the year. It is also not bound to declare the details of expenditure rationalisation, or cuts in budgetary spending during the year, until the publication of revised estimates for 2020-21 in next year’s Union Budget. In an interview with Bloomberg Quint on September 8, T V Somanathan, the expenditure secretary in the ministry of finance, said that the government has reduced spending for some ministries, given the resource crunch due to the pandemic.
Among the major heads listed in the supplementary demand for grants, Rs 44,340 is for states as additional allocation under Post Devolution Revenue Deficit Grant, Rs 30957 crore, Grants-in-aid General for Direct Benefit Transfer to Pradhan Mantri Jan Dhan Yojna Women Accounts Holders, Rs 40,000 crore is for the Mahatma Gandhi Rural Employment Guarantee Scheme, and Rs 20,000 crore is for infusion in state-owned banks.
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The document also shows that some of the big-ticket spending in the government’s Covid-19 response may be financed from extra-budgetary resources. For example, the government extended the provision of subsidised food up to November; this was initially announced for a period of three months beginning April, in June. This was expected to create an additional subsidy burden of Rs 1.5 lakh crore. However,the supplementary demand for grant has allocated only Rs 10000 crore for the department of food and public distribution. This means that additional subsidy burden will have to be financed from borrowings by the Food Corporation of India.
DK Srivastava, chief policy advisor at consultancy firm EY India said: “A limited fiscal stimulus is being injected into the economy through supplementary demands for grants for 2020-21 by the Ministry of Finance. The total amount is Rs 2.36 lakh crore, that is, about 1.16% of FY20 GDP. The genuine additionality amounts to INR1.67 lakh crore which is 0.82% of GDP. The balance amount pertains to re-allocation of budgeted expenditures.”
“The main items where additional expenditures are involved pertain to grants-in-aid for the states, direct benefit transfers to women account holders under the Jan Dhan Yojana, MNREGA, and for recapitalization of PSUs. Nearly 68.5% of this supplementary demand pertains to revenue expenditure. There is hardly any increase in capital expenditure. Furthermore, the additional provision for grants-in-aid to the states only makes up for the under-provision in the Budget with respect to the Fifteenth Finance Commission’s recommendations for 2020-21,” he added