Budget analysis: Infra takes a hit this year, FY21 social spends to drag

However, extra-budgetary borrowing in the form of fully-serviced govt bonds to boost scheme spending this fiscal, and maintain spending growth in the next, Budget documents show

While presenting the Budget for 2020-21 on February 1, Finance minister Nirmala Sitharaman tried to strike a balance between the need to spend more for stimulating growth and the limitations due to a severe shortfall in revenue. Even under the ambitious expenditure target in the wake of revenues slowing due to economic meltdown, several flagship schemes of the government are expected to see slow growth or a drop in funding. 

Some of the schemes got a breather in terms of the extra funds that will be made available, not through the Budget—or the consolidated fund of India, but through bonds that will be serviced by the government in upcoming years. 

A Business Standard analysis of spending and allocation to 22 schemes of the government, ranging from farmer’s income support to school literacy, health insurance to financial assistance to women self help groups, shows the following. 

• Rural roads, urban development, midday meals for school children and skill enhancement programmes took a hit in FY20.

• Rural employment, national health scheme, old-age and widow pensions, and entrepreneurship assistance to rural women to see stagnation/contraction in funds in FY21.

• Overall, 22 important schemes put together would see a 13 per cent growth in allocation, higher than the 12 per cent growth in gross tax revenues, courtesy off-Budget bonds.

• For 7 schemes, 40 per cent of funds to be provided from off-Budget sources, increasing the need to spare funds to service interest in coming years.

• Borrowing beyond the Budget books raises growth in allocation significantly for the seven schemes

• Finally, the government has severely short-changed a special need this year—the voluntary retirement of employees in the state-owned telecom companies BSNL and MTNL—by more than 50 per cent 

Let us look in detail at some of the schemes that lost out to poor revenue mobilisation, those which gained from off-Budget funds, and what the guardian ministries have to say. 

Let's start with the last point, as it is a special financial provision needed to be done this year. The two state-owned telecom companies Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) have offered a voluntary retirement scheme to their employees.

Telecom minister Ravi Shankar Prasad had said that the funds required to service the voluntary retirement in these two companies would run to Rs 30,000 crore. However, the Budget has provided only Rs 13,185 crore in the current Budget for the same in FY21. In FY20, a paltry Rs 530 crore has been provided. 

Among various flagship schemes, the biggest losers in 2019-20 were the projects under the Smart cities mission and its variant for smaller towns. The revised spending in FY20 is nearly 20 per cent less (from Rs 12,085 crore to Rs 9,842 crore) than the amount spent in the previous year, that is, FY19. Similarly, when it comes to rural roads, spending took a nearly 10 per cent hit in FY20 (from Rs 15,414 crore to Rs 14,070 crore). 

Though skill development is a flagship programme under the current government to make informal workers capable of working in the organised industry, the spending in FY20 took a 3 per cent cut (from Rs 2,619 to Rs 2,531) over the previous year. 

In the upcoming financial year 2020-21, for which the Budget was presented this month, the big-ticket rural employment guarantee scheme (MGNREGA) is budgeted to take a 13 per cent hit in FY21 (from Rs 71,000 crore to Rs 61.500 crore). 

A top official in the rural development ministry said that this will improve along the year FY21. “The finance ministry generally accepts the supplementary demand for grants in the second half of the financial year when it comes to MGNREGA,” the official said.

Then, the allocation towards the national health mission, which provides medical assistance to the rural folk in terms of reproductive and child health, and in the form of assistance to tackle various diseases, is slated to remain stagnant (nearly Rs 33,000 crore) in FY21.

Similarly, schemes under which the elderly and widows get pension, and those under which women in villages get credit from banks for entrepreneurial activity under the “self-help group” model will see no growth in funds in the upcoming year. The total spending under the two schemes would be stuck at Rs 20,000 crore in FY21. 

Schemes for the farm sector are slated to see a healthy growth in funds committed towards them. For example, interest subsidy provided to farmers for short term crop loans has been expanded 20 per cent, to cross Rs 21,000 crore this year. Crop insurance scheme is budgeted to get 15 per cent more funds than the previous year. 

One of the newest schemes of the Narendra Modi government, the Pradhan Mantri Jan Aarogya Yojana under Ayushman Bharat, got only half of the envisaged funds in FY20. As against the budgeted amount of Rs 6,400 crore, the revised estimate is only Rs 3,200 crore. 

A key official in the scheme office said that reduction in premium in the bidding process, late entry into the scheme by some states such as Rajasthan and Punjab, and slower implementation in the states with highest number of beneficiaries—Uttar Pradesh, Bihar and Madhya Pradesh—due to dearth of experience in implementing health insurance schemes were the reasons that compelled the national health agency to use less funds than budgeted. 

Despite all these, the reason spending on 22 major schemes is set to rise 13 per cent in FY21 is that seven schemes are getting a substantial infusion in the form of bonds serviced by the government. So much, that the bond finance is nearly 40 per cent of the total spending. 

Without these extra funds from out of the Budget, spending in these schemes would thus be considerably lower. 

For example, the scheme to ensure that irrigation water reaches the end user (command area development) would see only a 3 per cent rise in funds for FY21. But adding the funds available through bonds, the spending would grow by 29 per cent. 

Similarly, the affordable housing scheme for the poor would have seen a stagnant zero per cent growth in FY20 spending (current year). But a massive infusion of Rs 20,000 crore has pushed up the growth in spending by 78 per cent, the analysis from Budget documents shows. 

This kind of off-budget borrowing has its costs, as the principal as well as the interest will be paid by the government in the upcoming years, and will put limitations on development spending (as it would mean paying up past bills). 

While it is difficult to find how much the impact would be, data shows the magnitude of the problem. The government is ending up paying more than Rs 13,000 crore in FY21 on interest to be paid on loans availed to run various schemes in the past (from National Bank for Agriculture and Rural Development or elsewhere). 

Despite the off-Budget fund infusion, Swachh Bharat Mission—a scheme that majorly looks at toilet construction in villages—is set to see a 16 per cent drop in funds, as most of these funds are accounted for in the current financial year FY20, and not for FY21. 

Schemes to strengthen power supply systems in villages and cities is also getting higher amount of extra-budgetary funds this year, and is pulling down the growth in the next year. Officials aware of this said that most of the power supply system strengthening works in the current phase of the scheme are nearing completion, fund requirement has reduced.