Finance ministry cuts plan spend to bare minimum

Every plan scheme has been either terminated or just allowed the investment necessary to complete its targets, Ashok Lavasa said

The finance ministry has swept through all plan expenditure to create additional space for investment by the government.

“Every plan scheme has been either terminated or just allowed the investment necessary to complete its targets,” said Finance Secretary Ashok Lavasa to Business Standard.

The space has been created with the end of the 12th Five-Year Plan, whose terminal year was 2016-17. While the Budget for 2017-18 had retained the classification of government investment expenditure broadly under two heads “central schemes” and “centrally sponsored schemes” since it was necessary to keep continuity with the expenditure pattern of the past, the finance secretary indicated this would become history in next year’s Budget. 

The nomenclature apart, the rejig will release money for the government to allocate where it finds a necessity. This will be guided by the investment requirements for the sector. In the 2017-18 Budget the Centre earmarked Rs 9,45,077.25 crore for expenditure on themes that broadly resembled those of the 12th Five-Year Plan. 

Of the amount, about 70 per cent is for central sector schemes, meaning those where the central government has the sole prerogative to decide the spending pattern. The pattern is roughly the same as in 2016-17 though the expected expenditure is about 34 per cent more for the current year. 

Without going into the projected spending numbers for 2018-19, Lavasa said redrawing the schemes themselves had created a sizeable purse for the Centre to spend. His comments are significant as India’s rate of GDP growth slowed to 5.7 per cent in the June quarter, the weakest in three years. While several reasons have been offered for the slowdown including disruption created by the rollout of the goods and services tax in July 2017 and the impact of demonetisation in November 2016, there is a demand for higher government spending to make the rest of the economy respond. 

But it seems unlikely the government will loosen the fiscal deficit guideposts it has set itself. Rating agency S&P Global too has endorsed this position. It has commended the government for its fiscal policy stance as “mildly growth-focused”. The report issued in August notes, “Such measures have improved the country’s resilience to global shocks and lent stability to the rupee.”

In February this year Lavasa’s department instructed all ministries to terminate schemes that had a sunset date on them. For other schemes the ministries and departments were asked to negotiate with the finance ministry to make a case to continue them. “The approval for continuation of the scheme may be sought if the outcome review for the scheme has been positive and shows that though the scheme has been effective in achieving its objectives, still, there is a need to continue the scheme in view of its mandate and performance,” the letter issued by his department noted. It had also noted that the department of expenditure will merge or drop any schemes that do not meet the standards. 

The secretary acknowledged that despite the termination of the five-year plan framework, plenty of schemes that were either mandated by law or had shown good results would continue. But they are likely to be financially rejigged as there is no overarching structure mandated by the five-year plan which needs to be followed. After their reclassification in Budget 2017-18, there are 23 central sector schemes like Bharat Net, Namami Gange, rural electrification programmes, and those under bodies like the National Highways Authority of India. In addition, there are 56 centrally sponsored schemes ranging from agricultural support to housing, health, and digital. In these schemes the Centre and states divide financial responsibility. In both the categories, the finance secretary said, there was enough room to make them effective. 

Meanwhile, a working paper written by RBI economists and released on Monday concludes that “among all the policy options… shifting of government expenditure from current consumption to investments accompanied by a marginal depreciation of exchange rate of the Indian Rupee turns out to be the best in terms of overall impact on GDP and various other macroeconomic indicators including household real income per capita”.