Govt seeks House nod for extra ~1.67-trn spending INDIVJAL DHASMANA & PUNEET WADHWA

Experts peg Centre’s fiscal deficit for FY21 at 7.4-8.5% of GDP

The central government on Monday sought Parliament nod to incur additional expenditure of ~1.67 trillion for 2020-21 (FY21) to recapitalise banks, fight Covid-19, and fund various welfare schemes announced for vulnerable sections.

The first batch of supplementary demand for grants, tabled in the Lok Sabha by Finance Minister Nirmala Sitharaman, entails additional expenditure of ~2.36 trillion, but around ~68,868 crore will be met through savings in other schemes, showed the paper tabled in the House.

Generally, technical savings are higher than the net cash outgo in the supplementary demands, but this time around, the latter is more due to additional expenditure to fight the contagion, save lives of the weaker sections of society, and revive small- and medium-scale enterprises.

The additional expenditure will constitute around 0.9 per cent of gross domestic product (GDP) in the current fiscal year, assuming 5-8 per cent contraction in the economy at current prices, compared to 2019-20. However, its impact on the fiscal deficit depends on revenues which are seeing a shortfall.

According to estimates by ICRA, the Centre’s fiscal deficit will touch 7.4 per cent of GDP in FY21. The rating agency has, however, assumed 7.5 per cent contraction in GDP at current prices in the current fiscal year.

“Our baseline expectation is now that the Government of India’s fiscal deficit will widen to at least ~14 trillion, or 7.4 per cent of GDP, in FY21,” said ICRA Chief Economist Aditi Nayar.

The deficit has already touched ~8.2 trillion in the first four months of the current fiscal year, which is 3.1 per cent more than ~7.96 trillion estimated in the Budget for the entire year.

Nayar has assumed revenue shortfall to be around ~6 trillion in FY21.

CARE Ratings Chief Economist Madan Sabnavis said if ~1.67-trillion additional expenditure is met through additional borrowing of an equivalent amount, it will increase fiscal deficit by around 0.8 per cent of GDP.

“On an overall basis, FY21 fiscal deficit can hit 8–8.5 per cent of GDP. This is worrisome,” said Sabnavis.

The major heads of the supplementary demand for grants included expenditure for measures announced under the Atmanirbhar Bharat package, increased health-related activities, as well as some items that were underbudgeted earlier, such as the revenue deficit grants in relation to the Fifteenth Finance Commission’s recommendations.

The ~20-trillion Atmanirbhar Bharat package announced in May had a fiscal cost ranging between ~1.5 trillion and ~2 trillion. Nayar estimated it at ~2 trillion. Of this, ~98,000 crore has come under the supplementary demand for grants.

These included ~40,000 crore additional allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme, ~33,771.48 crore for direct benefit transfer to women holders of the Pradhan Mantri (PM) Jan-dhan accounts, ~10,000 crore for food subsidy, ~6,000 crore for setting up price stabilisation fund, ~4,374 crore for PM Garib Kalyan Yojana, and ~4,000 crore for emergency credit line for micro, small and medium enterprises.

Around ~14,000 crore was asked for the health sector, which is in the forefront of fighting Covid.

This includes ~5,915.49 crore for meeting additional expenditure towards grantsin-aid for containment of the pandemic and ~2,475 crore to the Indian Council of Medical Research.

Around ~46,000 crore was sought for revenue deficit grants to states and disaster response fund in line with the Fifteenth Finance Commission recommendations.