Govt eyes unspent funds to tread fiscal tightrope

Money allocated for government schemes in the 2019-20 financial year that is lying unspent may help in keeping the Union government’s fiscal math in order ahead of the upcoming Budget despite the current economic slowdown and an expected fall in revenue receipts, according to two people aware of the matter.

As on November 2019, the total unspent money was Rs 9,66,292 crore, or 34.7% of the Rs 27,86,349 crore budgeted for 2019-20, according to official data of the Controller General of Accounts (CGA). Total unspent money during the corresponding period in 2018-19 was Rs 7,83,572 crore, or 33.9% of the budgeted expenditure of Rs 23,11,422 crore.

While a major portion of allocated money is often spent towards the end of the fiscal, the Union finance ministry has this year tightened its cap on “rush” expenditure. “On Friday, the finance ministry issued an instruction to all ministries not to indulge in the last minute spending considering the fiscal position of the government in the current financial year,” one of the people cited above said on condition of anonymity, adding that a large chunk of the unspent money could be saved as a result.

The order, first issued on December 27, 2019, and then again on January 24, said that “rush of expenditure particularly in the closing months of financial year, shall be regarded as breach of financial propriety and shall be avoided”.

According to the order, ministries cannot spend more than 15% of the budget estimate (BE) in two months (i.e., January and February 2020) and 10% of BE in the last month (March 2020) with some exemptions, the person said.

He added that though the finance ministry has been sensitising other ministries not to wait till end of the year to spend allocated funds, the usual expenditure limit for January and February was reduced from 18% to 15%, and for March from 15% to 10%, keeping the fiscal position in mind.

India’s gross domestic product (GDP) grew at 4.5% in the second quarter of current financial year, the lowest since March 2013. According to the government’s first advanced estimates, India’s GDP is expected to grow at 5% in 2019-20, the lowest since 2008-09 when growth had slumped to 3.1% amidst the 2008 global financial crisis.

A second person said that despite the economic slowdown the fiscal deficit is unlikely to stray. “Three measures will significantly help the government in maintaining fiscal deficit glide path to a great extent in 2019-20 — improved revenue collections in the remaining two months, considerable amount of unspent money [by various ministries] and prohibition on ‘rush’ expenditure,” a second person said.

The fiscal deficit as on December 31, 2019 was about 3.83% of the GDP, but it is expected to go down significantly by March 31, 2020 and unlikely to be significantly off the track, the first person said. The budget estimate of the fiscal deficit in 2019-20 is 3.3% of the GDP at Rs 7,03,760 crore. It was 3.5% (Rs 5,91,062 crore) in 2017-18 and 3.4% (Rs 6,34,398 crore) in 2018-19, as per the revised estimate.

Vijay Kumar Gupta, former Central Council Member of the Institute of Chartered Accountants of India (ICAI), said, “It is prudent on part of government not allowing rush expenditure at the fag end of the fiscal year. It’s after all taxpayers’ money and should be spent judiciously. The unspent money would certainly help government in managing fiscal deficit and enhance the scope for greater allocations to key schemes next financial year.”

Several ministries and departments have not been able to spend even half of their budget allocations for 2019-20, according to the CGA data, and have little scope to exhaust the budgeted amount in remaining two months despite finance minister Nirmala Sitharaman’s constant prodding to front-load expenditures and fully utilise budgetary allocations, the people said.

To be sure, official data shows that the spending has not been low across ministries, and some of them have been able to spend a fair share of their allocation.

According to available official data for first eight months of the current financial year ending November 30, 2019, the ministry of agriculture and farmers welfare could spend only 49% of its Rs 1,38,563.97 crore allocated to it for financial year ending March 31, 2020. The ministry spent 70% of its allocated funds in the same eight-month period in 2018-19.

The monthly summery report of the finance ministry said that the direct benefit transfer (DBT) under the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) up to December 31, 2019 was Rs 43,245.23 crore — 57.66% of Rsw 75,000 crore allocated for 2019-20.

Fund utilisation under the Mahatma Gandhi National Rural Employment Guarantee Program (MGNREGA), however, was significant at 86.24% of total budgeted amount of Rs 60,000 crore.

Expenditure by the ministry of civil aviation in the period was only 39% of its total budget of Rs 4,500 crore, significantly less than total 83% utilisation of its budget in the same period last year.

The ministry of coal could spend 41% of its budgeted amount of Rs 1,159.05 crore till November 2019, the ministry of culture 54% of Rs 3,042.35 crore, the ministry of electronics and information technology (MeitY) 59% of Rs 6,654 crore and the ministry of food processing industries 43% of Rs 1,196.60 crore, the data said.

Till November, the ministry of housing and urban affairs could spend 58% of Rs 48,032.17 crore allocated to it for 2019-20. The ministry of human resource development 61% of Rs 94,853.64 crore, the ministry of Jal Shakti 60% of Rs 28,261.59 crore, the ministry of minority affairs 29% of Rs 4,700 crore, and the ministry of new and renewable energy 49% of Rs 5,254.83 crore.

The expenditure by the ministry of Panchayati Raj was 49% of Rs 871.37 crore, the ministry of shipping 53% of Rs 1,902.56 crore, the ministry of social justice & empowerment 57% of Rs 10,089.90 crore and the ministry of tourism 43% of Rs 2,189.22 crore.

Reuters reported last week that the government’s direct tax collections this year could end up being less than the last fiscal year. Earlier this month, it reported that the government is planning to cut back on spending by Rs 2 lakh crore due to revenue shortfall. One of the biggest challenges on the revenue collection front is a significant shortfall in nominal GDP (7.5%) compared with what the previous Budget had assumed (12%). Nominal GDP is GDP growth without discounting or inflation.