Agriculture to shipping, some ministries likely to see spending squeeze

To keep its fiscal deficit for 2019-20 within acceptable levels, the Centre is likely to go for a massive expenditure compression in the form of savings, rollovers, and outright cuts. The finance ministry is looking to compress around Rs 2.2 trillion, even as gross tax revenue could see a shortfall of much more than Rs 2 trillion, and there are now doubts regarding divestment targets as well. Most of the compressions are expected to come from ministries and departments that have underspent so far. These include the ministries of agriculture, civil aviation, roadways, shipping, electronics, information technology, tourism and social sector, among others. Devendra Pant, chief economist at India Ratings, said the first axe at the time of expenditure compression fall on capex followed by the social sector. “Whether expenditure is compressed or rolled over, it would impact the economic growth,” he said.

Officials say even if there is an expenditure compression of Rs 2 trillion, it remains to be seen if the fiscal deficit target will be met. Firstly, year-on-year nominal GDP growth will be much lesser than the budgeted 12 per cent. And second, as reported by Business Standard earlier, while the Fiscal Responsibility and Budget Management Act allows the Centre to slip to a fiscal deficit of 3.8 per cent under strict parameters, Budget makers are aiming for around 3.5 per cent for 2019-20. 

The efforts to rationalise expenditure across departments come after the Department of Economic Affairs issued an order last month which stated that departments should spend just 25 per cent of their yearly allocated amount in the January-March quarter. This is a reduction from the norm when departments are allowed to spend 33 per cent of their allocated amounts. For January and February combined, departments have been instructed to only spend 15 per cent of budgeted estimates, compared to 18 per cent earlier, and for March, they are allowed to spend 10 per cent, from 15 per cent earlier.

Given the total Budget size of Rs 27.86 trillion this year, 33 per cent of that comes up to Rs 9.19 trillion, while 25 per cent comes to around Rs 6.96 trillion. The difference between the two is Rs 2.23 trillion, which is what the central government needs to compress. The departments, which will be forced into a bind because of this finance ministry order, are the ones that have not spent a substantial allocation, even after the money was provided to them. 

The official data shows that, for example, the agriculture ministry has spent 49 per cent of its budgeted expenditure till November-end, compared to 70 per cent for the same period last year. Assuming that even if it spends up to 60 per cent till end-December, it cannot spend the remaining 40 per cent in January-March. Similarly, while the food processing unit has spent 43 per cent of its budget till November-end, much higher than 31 per cent for the same period last fiscal, it will still be forced to compress spending as it can only spend 25 per cent in the last three months of 2019-20. According to sources, the finance ministry is likely to benefit on the expenditure front from a number of items. Around Rs 25,000 crore is expected to be saved in PM-Kisan as the number of beneficiaries is lesser than earlier anticipated. Also, of the total Rs 1.84 trillion budgeted for food subsidies, some Rs 50,000 crore earmarked for the Food Corporation of India (FCI) is not being released. The FCI’s allocation out of the food subsidy bill was around Rs 1.5 trillion.

“Around Rs 1 trillion has been released from the Consolidated Fund of India, and the rest will be drawn down from the National Small Savings Fund, which is essentially off-budget,” said a senior official. Additionally, with oil prices spiking towards the end of the year, around Rs 5,000 crore in fuel subsidies is expected to be rolled over. The fuel subsidy budgeted for this year is Rs 37,478 crore. The fertiliser subsidy of around Rs 80,000 crore has been fully allocated. 

While Finance Minister Nirmala Sitharaman has said there would be absolutely no cuts in budgeted capital expenditure of Rs 3.38 trillion, there could be some savings in the natural course. In any given year, without any additional efforts, the Centre ends up saving around Rs 20,000 crore in capital and revenue expenditure, as a result of amounts allocated but unspent, which then lapse and are returned. This implies that the axe will fall more on revenue and administrative expenditure, where because of already committed items like schemes and salaries, the room to maneuver is limited.