Budget 2022-23: Finance ministry turns tight-fisted for next fiscal year

No government department should ask for additional spending in the guise of a Budget proposal for the next fiscal year, the finance ministry has said.

This has made the job of departments difficult because Budget proposals come with a financial outlay. These can be schemes or projects, but without a corresponding financial commitment, they become unworkable.

The restrictive order continues the tight fist in government finance of FY22 to FY23.  The finance managers do not want the departments to offer any monetary outlay even for next fiscal year beyond what they spend on their existing projects and programmes.

Union Finance Minister Nirmala Sitharaman will present the Budget in Parliament on February 1.

In FY22, the government is almost sure to add another expenditure bill of Rs 3 trillion, close to 9 per cent of the projected spend for the year. These are mostly subsidies. They will claw away the benefits of the expected higher tax revenues of close to Rs 2.5 trillion.

Government managers are not sure if subsidies can be kept in check in FY23 either. In one year, from FY20 to FY21, government expenditure jumped 30.8 per cent because of the pandemic. Taking into account the additional expenditure of Rs 3 trillion, the amount spent at the end of FY22 will be more than a 40 per cent jump in two years.

Thus, the finance ministry is most reluctant to sanction fresh expenditure.

This is despite close to Rs 2 trillion of disinvestment receipts — including those from Bharat Petroleum Corporation and the Life Insurance Corporation — being almost certain, and the current trend of higher tax revenues continuing. Tax revenues of the Centre and the states could exceed 18 per cent of GDP in FY22, which will be the first time in this country. The closest was 17.8 per cent of GDP in FY18.

The Budget instructions came last month, on the heels of the meetings on revised estimates, which every ministry and department had with the finance ministry. While some departments did send proposals that will cost extra money, the finance ministry rejected them.

While economists in their meeting with Sitharaman have suggested the Centre should not tighten the fiscal purse, with a new Omicron wave building up to damage the economy, the options are limited. High government borrowing will further exacerbate inflationary pressure and make the Reserve Bank of India’s job more difficult.

The Budget is therefore unlikely to offer too many new schemes.