Citing “substantially lower revenue mobilization” and “funding requirements of the relief and incentives packages” in the wake of the COVID-19 outbreak, the Ministry of Finance has asked central ministries and departments to release funds under centrally sponsored schemes (CSS) and projects on “need basis”, and not as per the entitlement of states.
In a letter to all ministries, Expenditure Secretary T V Somanathan has said: “In order to ensure availability of adequate funds to implement the Schemes and projects, it is proposed that Ministries and Departments collect the information for each Scheme or project in the manner in which enables them to release funds only on need basis.”
The move comes a month after the Finance Ministry asked ministries to limit spending during the first quarter of the current fiscal. For the financial year 2020-21, the size of the Centre’s budget is Rs 30,42,230 crore, out of which about 22 per cent is earmarked for CSS and central sector schemes and projects.
Highlighting the economic impacts of the lockdown, he also indicated that another relief package was in the offing.
Somananthan said that restrictions placed on the movement of goods, services, and manpower on account of directions issued by the Ministry of Home Affairs and the executive orders issued by the states and Union Territories have had a “significant impact on the economic activities” in the country, resulting in a “stress on the revenue mobilization” of the central government.
“Considering the loss of livelihood and the economic strain experienced by the industry, several relief measures have already been taken. As the economic impact of COVID-19 Global Pandemic unfolds, further relief and incentive package would be need to be designed and implemented,” Somanathan said in the letter dated May 4.
He further said, “For current year, therefore, we are faced with the twin challenges of not only substantially lower revenue mobilization, but also higher expenditure demands on the exchequer to accommodate the extra funding requirements of the relief and incentives packages.”
Finance Minister Nirmala Sitharaman had announced the Pradhan Mantri Garib Kalyan Package (PMGKP) on March 26 to give a relief to the poorer sections of society.
Somanathan asked ministries to observe “greater financial discipline” and control over the expenditure under the various schemes and projects during current financial year.
Govt’s twin challenges
The government needs resources to meet its committed liabilities provide a relief package to boost demand. It also needs to curtail wasteful expenditure and avoid parking of unutilised funds. The hike in excise duty on petrol and diesel for additional revenue is a step in that direction.
At the time of releasing funds in 2020-21, ministries and departments should collect information about states that did not release funds from the treasury to the state nodal agency during 2019-20, and did not contribute their due share during the last financial year, Somanathan said.
“While the strain on States exchequer on account of lockdown situation prevailing in the country is recognised, it is equally important that central releases to State Treasury (in case of CSS) and implementing agencies (in case of central sector schemes and projects) do not remain parked,” he said.
“The information as regards Treasury operations of the State show that substantial amount of surplus cash available with several of states is parked in Treasury Bills. This means that, while on the one hand, the Union pays interest on the borrowings, which are released to states, on the other, for lack of utilization, states park these funds in Treasury Bills earning interest,” he added.