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Saturday, October 16, 2021

Explained: Why has the Centre removed spending curbs on ministries?

Ministries and departments are now permitted to spend as per their approved monthly and quarterly expenditure plan.

Written by Sunny Verma , Edited by Explained Desk | New Delhi |
Updated: October 13, 2021 2:29:55 pm
As economic recovery picks up, the government has a better handle on its finances and revenues. (File photo)

With the government revenues picking up as the economic recovery gains strength, the Finance Ministry on Friday removed the expenditure curbs that were imposed on various ministries for the July-September quarter. As a cash management exercise, the government had earlier asked various ministries and departments (in category B) to “restrict the overall expenditure within 20 per cent of BE 2020-21 in Quarter 2 (July to September 2021)”. This restriction has been withdrawn.

What’s the change now?

The government did not impose any spending restrictions on the ministries of health, rural development, railways, agriculture, MSME (micro, small and medium enterprises) — the ministries and department in the Category A specified by the finance ministry. Expenditure curbs were imposed on demands/appropriations related to ministries and departments such as civil aviation, home, labour, mines, power, telecom and post, consumer affairs, fisheries, revenue, economic affairs, financial services and heavy industries, among others, in Category B. The government has now removed the restriction on limiting the expenditure to 20 per cent of Budget Estimates 2020-21 in the July-September quarter. Ministries and departments are now permitted to spend as per their approved monthly and quarterly expenditure plan.

Why have curbs been removed?

The curbs have been removed as government tax revenues picked up. Gross Goods and Services Tax (GST) collections in August (for sales in July) crossed the Rs 1 lakh crore mark. The August collections at Rs 1,12,020 crore were 29.6 per cent higher than in August 2020. In the last 11 months, GST collections have consistently remained over Rs 1 lakh crore, except in June (for sales in May). The second wave was also the most brutal in April-May. The gross Direct Taxes collections for the FY 2021-22 were at Rs 6,45,679 crore compared to Rs 4,39,242 crore (as on September 22) in the corresponding period of the preceding financial year, a growth of 47 per cent. The Gross collection (as on September 22) in FY 2021-22 has registered a growth of 16.75 per cent over FY 2019-20 when the gross collection was Rs. 5,53,063 crore.

What will be the impact?

As economic recovery picks up, the government has a better handle on its finances and revenues. Plus spending by the government, especially capital expenditure, is needed to sustain the recovery. For instance, industrial output rose by 11.5 per cent in July 2021 as against a 10.5 per cent contraction in July 2020, led by sharp expansion in the mining sector and growth recorded by the electricity and manufacturing sectors. The July data show industrial output at near pre-pandemic levels.

In terms of Gross Domestic Product, the economy grew at a record pace of 20.1 per cent in April-June 2021 compared with the corresponding period last year, when a national lockdown due to the Covid-19 pandemic had nearly halted all economic activities. The GDP had contracted 24.4 per cent in April-June 2020. As government capital expenditure has been one key component to induce demand in the economy, the removal of curbs helps in sustaining that.

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