The first Supplementary Demand for Grants (SDG) may include provisions for additional expenditure on food and fertiliser subsidy besides re-capitalisation of public sector general insurance companies. Still, government officials are hopeful of limiting the fiscal deficit (difference between expenditure and income) as planned in the budget.
First SDG for the fiscal year 2022-23 will be tabled in the forthcoming winter session of the Parliament which is likely to take place during November-December. SDG refers to statement of supplementary demands laid before the parliament, showing the estimated amount of further expenditure necessary for a financial year, over and above the expenditure authorised in the Annual Financial Statement for that year. The demand for supplementary may be token, technical or substantive/cash.
Token refers to a symbolic amount (₹1 lakh or so) to be allocated for any scheme, technical means savings of a Ministry/Department to be used for a different purpose or for a scheme where more fund is required. Substantive/cash implies fresh allocation beyond what provided in the budget and to be met through fresh withdrawal from the Consolidated Fund of India.
Allocation for urea
Finance Minister Nirmala Sitharaman has already committed an additional expenditure of ₹1.10 lakh crore for fertiliser subsidy. This is over the ₹1.05 lakh crore as announced in the budget. Additional allocation is required considering the surge in urea prices in the wake of Ukraine-Russia crisis.
More funds are required for food subsidy as the Cabinet approved extending the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) for another three months (October 2022-December 2022). Under this scheme free good grains at 5 kg per person per month is given to around 80 crore people. The extension is estimated to cost ₹44,762 crore. The government provided over ₹2.06 lakh crore for food subsidy in the budget.
Capital for insurance cos
More capital is required for general insurance companies as their solvency margin has dipped. As per the IRDAI’s mandate, the minimum solvency ratio insurance companies must maintain is 1.5 to lower risks. In terms of solvency margin, the required value is 150 per cent. The solvency margin is the extra capital the companies must hold over and above the claim amounts they are likely to incur. It acts as a financial backup in extreme situations, enabling the company to settle all claims.
The financial situation of public sector general insurance companies is not good. The latest annual results of New India Assurances showed that it ended Fiscal Year 2021-22 with a net profit of ₹164 crore. However, United India Insurance closed with a net loss of ₹984.68 crore in FY 2020-21, National Insurance with a loss of ₹1,674.74 crore in FY 2021-22, and Oriental Insurance with a loss of ₹1,525.44 crore during FY 2020-21.
Meanwhile, government officials said the additional expenditure is unlikely to push the fiscal deficit of 6.4 per cent as proposed in the budget. “On the one hand, tax collection has been good and is expected to be better, on the other hand there could be saving on account of just-in-time fund release mechanism,” an official said, while adding that borrowing has already been cut by ₹10,000 crore.