Nirmala Sitharaman goes for extra spending of Rs 2.36 lakh crore amid calls for stimulus
Amid a crash in tax collection and calls for more fiscal stimulus to soften the Covid-19 blow and spur growth, finance minister Nirmala Sitharaman on Monday sought Parliament’s approval for an additional spending of Rs 2,35,852.87 crore during the current fiscal. This implies the government may look at expanding the budget size for the year from the estimated Rs 30.4 lakh crore, though a precise estimate of the expansion will be clear only later.
This first batch of supplementary demand includes Rs 20,000 crore to shore up the capital base of state-run banks (infusion was not part of the FY21 Budget) to facilitate further lending and Rs 40,000 crore towards enhanced expenditure under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).
“Of this, the proposals involving net cash outgo aggregate to Rs 1,66,983.91 crore and gross additional expenditure, matched by savings of the ministries/ departments or by enhanced receipts/recoveries aggregates to Rs 68,868.33 crore”.
The supplementary demand includes a total of 54 grants and one appropriation.
Demand for certain new items of expenditure, including the extra allocation for MGNREGS and Rs 4,000 crore for the credit guarantee scheme for MSMEs, had to be made to provide for the relief package announced earlier this year.
The Centre has sought Rs 46,602.43 crore to provide additional allocation under the post-devolution revenue deficit grant to states, in accordance with the recommendations of the Fifteenth Finance Commission.
Some analysts have said the revenue shortfall and extra stimulus requirements could warrant an additional resource mobilistion of Rs 8.5-9.5 lakh crore over and above the likely Budget revenue receipts in FY21. Given the massive plunge in revenue, the Centre was forced to raise its FY21 borrowing by Rs 4.2 lakh crore from the budgeted level to Rs 12 lakh crore. Of this, it has already raised Rs 7.1 lakh crore from the market, which is 73% higher than a year earlier.
Nevertheless, mindful of its fragile fiscal position, the government of late applied brakes on certain spending. Its expenditure in July grew just 6% on year, compared with 46% growth achieved in June and the budgeted spending growth of 13.2% for the whole of FY21. The capex in July at Rs 23,576 crore was down a sharp 47% on year.
With net tax revenues declining 40% on year in April-July (the budgeted growth was 21% in FY21 over the actual of FY20), analysts see fiscal deficit more than doubling from the budgeted target of Rs 8 lakh crore. Meanwhile, the April-July fiscal deficit has exceeded the Budgeted target for the full year.
Commenting on the supplementary demand, Icra Ratings principal economist Aditi Nayar said: “The extent to which savings can be found vide the expenditure management measures that were put in place, will contribute to determining the eventual fiscal outcome for FY21 in light of the ongoing revenue shock of around Rs 6 lakh crore. Our baseline expectation is now that the Centre’s fiscal deficit will widen to at least Rs 14 lakh crore, or 7.4% of GDP in FY21.”
The government’s budgeted fiscal deficit target for FY21 was 3.5% of GDP.