Government spending has been driving the economy for the past several quarters, yet data shows that both revenue and capital expenditure (capex) was lower in FY21 so far than FY20. For the first six months of this fiscal, while capex spending stood at 40 per cent of the budgeted amount as against 55 per cent the previous fiscal, only 50 per cent of the budgeted amount was spent towards revenue expenditure compared to 53 per cent in FY20.
The fiscal prudence exercised by the ministries under the directions of the government is understandable, but growth recovery depends on the intensity of spending during the rest of the fiscal.
Data analysed by Care Ratings showed some interesting analysis. Of the top 10 ministries, which accounted for 82.5 per cent of the budgeted outlay constituted 87.5 per cent of expenditure in the first six months.
Even within this set, five ministries have spent a lower proportion of the budgeted amount this year relative to last year.
As for capex, only three ministries including defence, roads and railways have been the biggest spenders having spent a combined Rs 1.25 lakh crore, or nearly half of the budgeted Rs 2.76 lakh crore for FY21.
“With MNREGA being increased, the expenditure of the Ministry of Rural Development has gone past the budgeted amount. Expenditure on defence has been lower this year as has roads due to the change in priorities,” it noted.
It may be noted that as part of the stimulus programme, the government has vowed to spend another Rs 25,000 crore by March, which means that the centre’s total capex will increase from Rs 4.12 lakh crore to Rs 4.37 lakh crore.
But how this will be financed remains to be seen, given revenue collection is subdued. So far, of the Rs 22.46 lakh crore non-debt revenue, only 25 per cent has been realised as against 40 per cent last year. The shortfall of 15 per cent is about Rs 3.36 lakh crore.
Disinvestments, which the government placed its bets early this year, is likely to disappoint with only five months left in the financial year.
Though GST collections are showing promise, much depends on sustainability.
The government has already buffered in additional borrowing of Rs 4.2 lakh crore thus increasing the fiscal deficit from the budgeted Rs 7.96 lakh crore to a little over Rs 13 lakh crore.
Care Ratings believes, besides the shortfall in the first half, there would also be deficits on disinvestment and non-tax revenue resulting in a total shortfall of Rs 5.56 lakh crore.
Besides, additional expenditure could be about Rs 3.5-4 lakh crore, pushing up the fiscal deficit too close to Rs 17.5-18 lakh crore in the absence of sharp expenditure cuts. It means, fiscal deficit may touch as high as 9 per cent in FY21.