Tepid tax mop-up pushes Govt to cap expenditure in last quarter of fiscal

Shishir Sinha New Delhi | Updated on December 31, 2019 Published on December 30, 2019

For January-March, spending will be limited to 25% of BE, from 33% earlier

With the exchequer severely stressed amid weak tax collections, the Finance Ministry has decided to cut the expenditure plan for the remaining period of the current fiscal.

According to an office memorandum by the Budget Division of the Economic Affairs Department under the Finance Ministry, considering the fiscal position of the government in the current fiscal, it has been decided to cap the expenditure at 25 per cent of the Budget Estimate down from 33 per cent during the last quarter (January-March).

Similarly, the cap for March will be 10 per cent against the current 15 per cent. For January and February, the revised limit will be 15 per cent against the BE of 18 per cent.

The memorandum also lists guidelines for incurring expenditure for the rest of the current fiscal. It has been decided that if there is a reduction in the expenditure ceiling in the Revised Estimate vis-à-vis the Budget Estimate, the expenditure should be restricted to the ceiling indicated in the RE.

In case of any expenditure (through re-allocation of savings within the Grant) requiring approval of Parliament, it may be incurred only after obtaining the House nod through Supplementary Demands for Grants.

It has also been decided that any additional expenditure will be incurred only after obtaining the approval of Parliament.

All Central Ministries and Departments have been asked to observe the guidelines ‘strictly and regulate the expenditure accordingly’.

However, it has been clarified that items of large expenditure would continue to be governed by the guidelines issued previously.

The last revision in expenditure guidelines took place in 2017 when it was decided to restrict the expenditure to 33 per cent and 15 per cent, respectively, in the last quarter and last month of the financial year.

Now, this decision has been taken at a time when the fiscal deficit has already exceeded the Budget Estimate in the first seven months (April-October) of the current fiscal.

According to data released by the Controller General of Accounts (CGA), fiscal deficit for April-October touched ₹7.20- lakh crore. This is 102.4 per cent of the Budget estimate of ₹7.03- lakh crore, which is 3.3 per cent of Gross Domestic Products. The problem is the lower-than-estimated tax collection and the tepid non-tax mop-up, especially disinvestment.

Though the Net direct tax collection for April-November at ₹5.56-lakh crore was slightly higher than previous year’s ₹5.47-lakh crore, the growth rate was not enough to achieve the target of ₹13.35-lakh crore.

Tax collection

On the GST front, net collection from CGST, IGST and Compensation Cess during April-November was ₹3.98-lakh crore against ₹5.82-lakh crore last fiscal. The target for the current fiscal is ₹6.63-lakh crore.

Even collection from disinvestment has not been encouraging. So far ₹17,364.26 crore has been obtained through disinvestment transactions while the target is ₹1.05-lakh crore. Now, the government is betting on three key transactions, BPCL, Air India and the sale of two power utilities (Tehri Hydro and North East Electric Power Corporation) to NTPC.





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Published on December 30, 2019
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