Run-up to Budget 2023-24: Centre looks to cut non-priority expenditure

Direct and indirect tax revenues may not be enough to offset food and fertiliser subsidies

When finance ministry officials begin their pre-Budget meetings with various central departments and ministries from Monday (October 10), their biggest challenge will be to identify and cut non-priority spending to meet the 2022-23 (FY23) fiscal deficit target of 6.4 per cent of gross domestic product.

Sources informed Business Standard that while direct and indirect tax revenues had been healthy this year, they might not be enough to offset the massive expansion in food and fertiliser subsidies.

“Our topmost priority is the 6.4 per cent target — it is a red line. The revenue flows may not compensate for the additional costs adequately,” said a senior official. 

“We will have to find ways to cut non-priority expenditure, or scale down where the pace of expenditure is not very impressive,” added the official.

The official clarified that capital expenditure (capex) will not be touched, while most of the subsidy, welfare, and flagship scheme spending are still locked in.

“There are hard Budget constraints. Capex and most of the revenue expenditure is already committed. There will be tough calls to take. That is what the Revised Estimates (RE) meetings will focus on,” the official said.

From October 10 to November 10, officials from the Departments of Expenditure and Economic Affairs will meet representatives from all the central governments, ministries, agencies, and Union Territories. The aim of these meetings will be to set RE for FY23 and the Budget Estimates allocations for 2023-24.

Finance Minister Nirmala Sitharaman is expected to hold her own meetings with industry bodies, representatives from sectors such as agriculture and social sector, and economists from mid-November onwards.

The official quoted earlier furnished an example of how various departments have been told to remove inefficiencies in expenditure.

The Ministry of Consumer Affairs, Food and Public Distribution has been asked to look at how costs of procurement are calculated for foodgrain meant for the central government’s food guarantee schemes, including the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).

“Until now, whatever food subsidy has been asked is given (from the finance ministry). We are saying such an arrangement cannot continue and have told the ministry to ensure the pricing is fair and reasonable and does not absorb inefficiencies in the chain. It is examining the matter,” added the official.

The official said that a similar exercise to reduce leaks is being undertaken for flagship schemes such as the National Rural Employment Guarantee Act, and that in the areas where spending is not as much as the finance ministry had anticipated earlier, there will be attempts to rationalise interest costs.

The two big expenditure items this year, on account of the geopolitical shocks caused by the war in Europe, are food and fertiliser subsidies.

On account of multiple extensions to PMGKAY, the food subsidy burden for FY23 could rise to a massive Rs 3.32 trillion, from a budgeted target of Rs 2.07 trillion — not including any savings on lower procurement costs.

Meanwhile, fertiliser subsidies could rise to Rs 2.5 trillion, from a budgeted Rs 1.05 trillion, on account of higher natural gas and input costs.

As reported earlier, the Centre is expecting substantial expenditure savings through the Single Nodal Agency (SNA) dashboard, which could be as much as Rs 40,000-50,000 crore.

SNA is one of the new accounting mechanisms in the Public Finance Management System for distribution of centrally sponsored schemes-related amounts to states. Through the SNA dashboard, officials can track funds from the central treasury to ministries to state treasuries and departments and right down to the vendor, contractor or implementing agency.

On the tax revenue front, the goods and services tax collections for September soared 26 per cent to Rs 1.47 trillion, on account of rising demand, higher rates, and greater tax compliance.

Collections from the nationwide tax remained above the Rs 1.4 trillion-mark for the seventh straight month during the month, continuing to display high buoyancy.

Meanwhile, direct tax collections up to October 8 this year stood at Rs 8.98 trillion — about 23.8 per cent higher than the same period last year. However, there is concern over possible shortfall in non-tax revenue and divestment targets.