Policy

Centre to go with ‘liberalised’ expenditure mechanism for current fiscal

Shishir Sinha New Delhi | Updated on May 17, 2021

There will not be grouping of the Central government ministries/departments for cash management

The Finance Ministry proposes to continue with liberalised cash management even as some of the agencies are predicting lower revenue collection this fiscal on account of the pandemic. There will not be grouping of the Central government ministries/departments for cash management. Also, the ministries will not have to follow any limit on monthly or quarterly expenditure for first three quarters.

It may be noted that during FY 2020-21, the government had brought in a system, where barring a select group of ministries/departments such as Health, Pharmaceutical Defence, Consumer Affairs, Fertiliser, etc, all had to face expenditure curb during first two-and-half quarters.

“We will go with the 2017 Office Memorandum (OM) of cash management system,” a senior Finance Ministry official told BusinessLine.

Another official explained that based on the said the OM, each of the Central government ministry/department can have monthly and quarterly expenditure plans according to their own requirement for April-December period and submit it to the Finance Ministry.

“Total expenditure should be 67 per cent of budget allocation of the entire fiscal during the first nine months,” he said. The said circular prescribes a limit of quarterly expenditure of 33 per cent in the last quarter (January-March) and 15 per cent in March. “Practically, this is the only quarter where the Finance Ministry has a say,” he said.

The Finance Ministry has already exempted capital expenditure for the current fiscal from the said OM. On April 22, the Ministry issued another OM saying that the monthly and the quarterly expenditure ceilings and restrictions will not be applicable under the ‘capital heads’ in the budget. “These relaxations shall take immediate effect and shall apply until further orders,” it said.

Out of the total budget of ₹34.83-lakh crore, the government proposes to spend over ₹29-lakh crore under revenue head and remining ₹5.54-lakh crore under the capital head. Out of this, more than ₹44,000 crore will be provided for projects/programmes/departments that show good progress on capital expenditure and are in need of further funds. The Finance Ministry, on April 22, said it aims to boost the capital expenditure, which helps create more assets and encourages higher spend by the private sector.

The Finance Ministry’s stance has come at a time when agencies such as Moody’s and S&P have projected some shortfall in revenue and higher fiscal deficit. According to Moody’s, the renewed surge in the virus could contribute to a marginal shortfall in revenue and a redirection of spending toward healthcare and virus response relative to what the government budgeted in February. Accordingly, it upped a wider general government fiscal deficit to 11.8 per cent of GDP in FY 2021-22 from its previous forecast of 10.8 per cent and an estimated 14 per cent in FY 2020-21.

While S&P said, “In both the moderate and severe downside scenarios for the Indian economy, there is a risk that the fiscal deficit would be higher than our forecast 11.4 per cent of GDP this year, which could push the debt stock slightly higher still.”

Published on May 17, 2021

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