Central Government opens its spending taps

by Manasi Swamy

The Central Government has finally opened its spending taps. In December 2020, it spent nearly Rs.3.74 trillion. This was its highest monthly expenditure, at least since April 1997, when the Controller General of Accounts (CGA) started releasing the Centre’s monthly financial accounts.

Revenue expenditure in December 2020 was at a record high of Rs.3.05 trillion. Capital expenditure too, at Rs.678.16 billion, was at its highest since February 2017 and the second highest since April 1997. Compared year-on-year, revenue expenditure was higher by 23.4 per cent and capital expenditure was up by 62.7 per cent.

Most ministries stepped up their spending in December 2020 after the Ministry of Finance relaxed quarterly expenditure caps imposed on them in April 2020. The government had classified ministries and departments into three categories. Category A ministries had no restrictions on the temporal distribution of their annual budgeted spending. Category B and Category C were allowed to spend only 20 per cent and 15 per cent of their annual budget in the first quarter, respectively.

In December 2020, the Ministry of Human Resource Development reported a sharp increase in its spending to Rs.176.80 billion from an average monthly expenditure of Rs.51 billion during the first eight months of 2020-21. The expenditure was a whopping 63.8 per cent higher when compared to its year-ago level. The Ministry of Agriculture, the Ministry of Health & Family Welfare and the Ministry of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy (AYUSH) also reported a strong year-on-year increase in their expenditure of the order of 40.3 per cent, 17.5 per cent and 98.7 per cent, respectively.

Financial outgo on account of pensions, both defence and civil, increased sharply by 86.9 per cent in December 2020 compared to its year-ago level. The Ministry of Housing & Urban Poverty Alleviation too scaled up its expenditure y-o-y by a robust 42.5 per cent. Transfers to states and UTs by the Centre increased three folds from Rs.91.32 billion in December 2019 to Rs.393.15 billion in December 2020, while the Department of Revenue under the Ministry of Finance reported a 14.9 per cent increase in expenditure to Rs.405.80 billion. The department mainly carries out the responsibility of transferring compensation by the Centre to states against their loss of revenue due to introduction of GST.

Interest payments and spending on Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) carried out by the Ministry of Rural Development, made significant contributions of Rs.887.46 billion and Rs.102.87 billion, respectively, to the government’s expenditure in December 2020. But, compared y-o-y, their growth was modest, in the range of five to eight per cent.

The Centre’s expenditure on fertiliser subsidy doubled to Rs.77.82 billion in December 2020 compared to Rs.38.79 billion in December 2019 and that on petroleum subsidy increased three times to Rs.84.11 billion from Rs.26.96 billion in the same comparison. Expenditure on food subsidy, however, declined to Rs.90.41 billion from Rs.104.48 billion in December 2019. The Centre provided Rs.1.25 trillion for food subsidy till December this fiscal. This is 12.5 per cent lower than last year’s expenditure despite the requirement going up dramatically due to record rabi and kharif crop procurement and free food distribution to the very poor amid the lockdown. The reflection of under-provisioning for food subsidy is seen in the 14.2 per cent increase in the debt burden of Food Corporation of India between March 2020 and December 2020. Besides, the state governments of Bihar, Chhattisgarh and Odisha are also claiming that the delay in release of subsidy by the Centre has derailed their foodgrain procurement programmes.

Nonetheless, the December 2020 push has scaled up the Centre’s cumulative expenditure during the first nine months of fiscal 2020-21 to 75 per cent of its annual budgeted target. It had budgeted for Rs.30.42 trillion expenditure for the year which translates into a 13.2 per cent increase over the expenditure incurred in the preceding year. Of this, the Centre spent 26.8 per cent in the June 2020 quarter, the strictest period of the Covid-19 induced lockdown. The Rs.8.16 trillion expenditure incurred during the quarter was 13.1 per cent higher than its level in the corresponding period a year-ago. The thrust was on expenditure committed under the Pradhan Mantri Garib Kalyan package announced on March 26 and the Atma Nirbhar Bharat package announced in mid-May.

Due to a steep 47 per cent contraction in receipts, the government’s gross fiscal deficit crossed 83 per cent of its annual target in the first three months of fiscal 2020-21. While the government claimed that it would not compromise on expenditure and increased its borrowings target for the fiscal by Rs.4.2 trillion to Rs.12 trillion, it actually went slow on expenditure in the September 2020 quarter. The expenditure declined y-o-y by 13.5 per cent in the September 2020 quarter. And, the sluggishness in spending lingered around till October.

Following a pick-up in receipts from October 2020, the Centre started ramping up its expenditure. In November 2020, expenditure rose y-o-y 48.3 per cent and in December 2020, the growth remained strong at 29.1 per cent.

Cumulatively the government has spent Rs.22.8 trillion till December this year. This is 75 per cent of its annual budgeted expenditure target for fiscal year 2020-21. At the same time last year, the government had exhausted 75.7 per cent of its annual budgeted spending. In absolute terms, the cumulative expenditure till December this year is 8.1 per cent higher than last year.

The government needs to spend Rs.7.62 trillion in the last quarter of 2020-21 if it has to meet its budgeted annual expenditure target. This implies a sharp 32.1 per cent y-o-y expansion in spending. While the task is challenging, the recent buoyancy in government’s receipts and its expenditure suggest that the government may achieve it. The Economic Survey tabled in the Parliament on January 29, 2021, has argued strongly in favour of a big expansion in government spending without paying much heed to the international rating agencies’ insistence on fiscal prudence. The survey also argues that fiscal expansion does not crowd out private investments.

1. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001031010000000000&repnum=20448&frequency=M&colno=1
2. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001031010000000000&repnum=20427&frequency=M&colno=1