Finance Ministry cuts August 2022 spend: Efficiency or compression?

The centre saved around Rs 10,000 crore through SNA last fiscal year

Even as the Centre faces a much higher spending burden than it did last year, especially on food and fertiliser subsidies, the Union Ministry of Finance’s Expenditure Department seems to have held back spending in August.
 

However, analysts say this is not compression per se, and the Centre is ensuring that the funds released are spent before further money is allocated.
 

According to the data released by the Controller General of Accounts last week, revenue (or administrative) expenditure in August was Rs 61,103 crore, some 51 per cent lower than the Rs 1.24 trillion spent in the same month last year.

The only other month so far in FY23 where the Centre did not spend as much as last year was May and that too by much smaller margin.
 

Analysts say the Centre is being more circumspect in its allocations, and is able to track money better through the “Single Nodal Agency” dashboard.
 

“This is not compression but more of a holding back of amounts. The cash position of the government also seems very comfortable,” said Soumya Kanti Ghosh, group chief economic advisor, State Bank of India. “The SNA dashboard seems to be generating a lot of savings. The savings at the end of the year could be material,” said Aditi Nayar, chief economist, ICRA.

As reported earlier, substantial expenditure savings are expected through the SNA dashboard.

 

Officials say this could be as much as Rs 40,000-50,000 crore. The Centre has held back allocations worth more than Rs 1 trillion so far this year for certain schemes, telling states that they have the equivalent amount in their treasuries and should spend those sums first.
 

The SNA is one of the new accounting mechanisms in the Public Finance Management System for distributing amounts to states related to centrally sponsored schemes (CSS). CSS are funded jointly by the Centre and states. Through the dashboard, officials can track funds from their release from the central treasury to ministries to state treasuries and departments and right down to the vendor, contractor or implementing agency.
 

Under SNA, states have one bank account for one scheme and all the money for that scheme will flow through that account. This has meant that instead of hundreds of thousands of accounts, the Centre just has to monitor around 3,000 accounts. The Centre saved around Rs 10,000 crore through the SNA last fiscal year.
 

ICRA’s Nayar said the Centre was going for efficiency and savings through such a move because the money in the treasuries of states was lying idle.
 

There is another surprising piece of data for April-August FY23. The sums released as food subsidies are Rs 75,168 crore, or 36 per cent of the full-year target, compared with Rs 1.07 trillion, or 44 per cent, for the same period last year. This, even as the food subsidy bill is expected to balloon this year.
 

The two big expenditure items this year, on account of the geopolitical shocks caused by war in Europe, are food and fertiliser subsidies. On account of multiple extensions to the Pradhan Mantri Gareeb Kalyan Anna Yojana (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.

“For food subsidy, the timing of the release may be different in different years, so one cannot read too much into it. Some years, the release is highly back-ended. That could be the case here as well, in the coming months,” Nayar said.

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