India: Spending curbs on ministries seen offsetting cost

  • The spending curbs imposed by the finance ministry on several ministries and departments for 3Q21, coupled with the lower-than-business-as-usual expenditure reported by many of them for 2Q21, could amount to budgetary savings of INR1.15tr or thereabouts in the first half of the current financial year.
  • This would almost completely offset the additional budgetary spending commitments for the whole of FY22, arising from a set of relief measures announced by the government recently to soften the blow of the second wave of Covid-19.
  • Various agencies have estimated the fiscal cost of the recent relief packages at INR1.2tr-INR1.3tr. Of course, a thrust being given to capital expenditure, a likelihood of a gradual increase even in the revenue spending in the second half of the year and overall revenue shortfalls could still put pressure on the fiscal deficit target of 6.8% of the year.
  • But unless a more savage third wave hits the country and the whole fiscal plans go haywire, the fiscal deficit might not widen much beyond the budgeted level.
  • According to official sources, less-than-budgeted level of spending could continue for many departments in 4Q21.
  • On 30 Jun 21, finance ministry asked 81 ministries/departments/organisations to scale down their 3Q21 expenditure plans by at least 5 percentage points (pps) from the business-as-usual level of 25% of the full-year spending, in view of stress on the government’s finances.
  • Most departments’ spending is learnt to have remained within 20% of BE in 2Q21 against available limit of 25%. Thanks to capping of spending at 20% in 3Q21, the cumulative saving from both quarters will be about INR1.03tr or 10% of the respective BE of INR10.35tr.
  • On top of this, the departments exempted from spending curbs also could spend only 25% in 3Q21, meaning that these departments can’t carry forward their savings from 2Q21 to 3Q21.

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