Finance Ministry withdraws spending curbs on ministries, departments

The overall expenditure of more than 80 out of 101 departments, including steel, labour and civil aviation, was restricted to 20% of the Budget estimate for this fiscal year

The Centre has withdrawn spending curbs on ministries and departments and allowed them to spend in accordance with their Budget estimates for the remaining part of the fiscal year. The move is likely to help spur the economy which is struggling to come back to the pre-covid levels. 

The decision was triggered by an upturn in the government’s tax revenues, which are running ahead of the budgeted target, despite the impact of the second Covid wave on economic activities during April-May.

“The guidelines have been reviewed. The stipulation to regulate the overall expenditure within 20 per cent of BE 2021-22 in July-September quarter “stands withdrawn” with immediate effect. 

Accordingly all ministries/departments are now permitted to spend as per their own approved monthly expenditure plan/quarterly expenditure plan until further orders, during remaining part of the financial year,” the Budget Division of the Department of Economic Affairs said on Friday.

The move, according to government sources, can help in setting better revised estimates for this fiscal year and may also have a positive impact on the budget allocation for the next fiscal year (FY23). Typically, the first estimate is based on the expenditure trends of the first six months and the revised estimate on spending till November.

The pre-Budget meetings, beginning on October 12, will take the spending trends into account in the Union Budget preparations.

Further, the notification said instructions related with regulating bulk items of expenditure (those of Rs 200 crore or more) were relaxed for things pertaining to budgeted capital expenditure for the remaining part of this fiscal year.

In June, the finance ministry had imposed spending curbs on ministries and departments to restrict expenditure to a maximum of 20 per cent of their annual budgetary allocation in the September quarter as part of austerity measures.

The overall expenditure of more than 80 out of 101 departments, including steel, labour and civil aviation, was restricted to 20 per cent of the Budget estimate for this fiscal year.

The data shows government spending had contracted by 5 per cent in April-July on a year-on-year basis, and stood at 29 per cent of the BE. It further revealed only 51 demands registered an increase on a yearly basis while 44 demands declined during the period.

“With the withdrawal of expenditure management guidelines, we anticipate spending will gather pace in the second half of this year,” said Aditi Nayar, chief economist, ICRA.

This will be critical to unleash animal spirits and drive a faster recovery in economic activity, she said. Madan Sabnavis, chief economist of CARE Ratings, however, said the move might not make much of a difference.

“So far revenue expenditure has been lower than last year, mainly due to less relief commitment. Capex is on target, which means that departments were spending where required. However, we will not have the case of deficit widening on this score,” he said. 

Central ministries/departments are required to make monthly or quarterly expenditure plans and cap it at 25 per cent of Budget Estimates in each of the first three quarters. However, in the fourth quarter, it has to cap it at 33 per cent of the BE  and 15 per cent in March as prescribed by the Finance Ministry.