THE Finance Ministry is of the view that the situation arising out of COVID-19 and the subsequent lockdown may cause “stress” to the government’s cash position in the first quarter (April-June) of 2020-21.
In an office memorandum issued by the Budget Division in the Department of Economic Affairs on Wednesday, the ministry put the Demand for Grants, or in simple words, the expenditure estimates, of various departments or ministries, in one of the three categories A, B or C.
For instance, under Category B, 31 Demands for Grants are listed, including those of ministries such as fertilisers, posts, external affairs and home affairs. For these demands, the Finance Ministry has stipulated that the monthly expenditure should be kept at 8 per cent of the BE for April, and 6 per cent each for the next two months. In other words, these ministries have been asked not be spend beyond 20 per cent of their full year Budget Estimate.
Similarly, under Category C, Demands for Grants of 52 departments or ministries are listed. These include ministries and departments such as coal, chemicals and petrochemicals, tourism, steel, women and child development, youth affairs and sports, shipping, mines, higher education, among others. The Finance Ministry has asked these ministries to restrict their monthly spend to 5 per cent of the full year’s Budget Estimate.
Category A comprises 17 Demand for Grants, which will follow the guidelines as they existed earlier for them.
Emphasising that it was essential to regulate government expenditure, the Finance Ministry said it was important to fix and stick to the plan specified. It said that large expenditure items would continue to be regulated as before, and said deviation from the current guidelines would require prior approval of the Finance Ministry.
The move comes in the backdrop of economic uncertainty given the drastic disruption of economic activity due to the outbreak of the pandemic. Pre-existing stress in the economy has left the government will little cushion to fall back upon now.
The outbreak has upset the assumptions and calculations made in the Budget presented by the Finance Minister two months back. It is expected to adversely impact revenue mobilisation. This was reflected in the GST collections for the March as well as the net direct tax collections figures of 2019-20.
The government’s net direct tax collections for 2019-20 witnessed a contraction over last year, a situation witnessed after a gap of 20 years. In fact, the government’s net direct tax collections fell short of the reduced revised target for 2019-20 by Rs 1.42 lakh crore at Rs 10.27 lakh crore, which meant a decline of over 8 per cent from previous year’s receipts.
On the indirect tax front, too, the government revenues have come under tremendous strain. The GST revenues for March 2020 slipped below Rs one lakh crore after recording collections of over Rs one lakh crore in each of the previous four consecutive months till February.
Hamstrung by economic slowdown, Finance Minister Nirmala Sitharaman had revised downward the estimate of expenditure to Rs 26.99 lakh for 2019-20 and projected a nominal growth of 10 per cent to budget the expenditure at Rs 30.42 lakh crore for the ongoing fiscal. However, this estimate is likley to come under pressure over disruption in economic activities that will strain the government’s revenue mobilisation in the current fiscal.
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