A lot of the commentary looks only at cash support. In our system, we provide income support in kind. We provided free food including pulses to 800 million people for eight months till November. That is a big fiscal push.
A day after finance minister Nirmala Sitharaman presented a reform-oriented Union Budget with focus on pushing spending on infrastructure to put the economy ravaged by the coronavirus pandemic back on growth track, expenditure secretary TV Somanathan, in the Ministry of Finance explains the rationale of the Budget and initial hesitancy of the government to push spending. Edited excerpts:
What was the philosophy behind the Budget this time?
The philosophy was to rekindle growth by focusing on labour intensive infrastructure projects because it has the twin advantage of rekindling growth and of creating jobs for the unskilled and the semi-skilled, the exact section of society we want to address. That was the main focus at least on the expenditure side of the Budget I am in charge of.
The total expenditure for nine months to December in FY21 stood at ₹22.8 trillion whereas the revised estimate (RE) in the Budget for the full year is ₹34.5 trillion. Where and how will you be able to spend ₹11.7 trillion in just three months time?
There are a lot of big ticket items to come like fertilizer subsidy worth ₹65,000 crore, part of the food subsidy needs to be absorbed in this (fourth) quarter. These are big ticket, lumpy expenditures. So we are very likely to reach that figure. The extrapolation this year is going to be very misleading. In the first six months, expenditure was artificially restricted. The restrictions on expenditure were imposed till the end of Q2 (September quarter). They have been relaxed and removed.
So, the pace of expenditure is not a steady graph with a lot of administrative control on expenditure which has affected it. Some of the package announcements will be released in the last (March) quarter. Similarly, some of the additional provisions we have made in the RE for railways and highways etc will get spent in this quarter. So we are fairly confident that the RE numbers will be approximately correct.
Shouldn’t such expenditure have been frontloaded in a recession year and spent especially during September quarter when government expenditure contracted? Instead of counter-cyclical support, aren’t you providing pro-cyclical support?
That’s true. We felt that there is no point in attempting to spend money at a time when the economy was physically under health restrictions. For example, in the case of capital expenditure, we had not put restrictions on capital spending ministries such as highways and railways but yet they could not spent because workers, contractors were not coming; machines could not be operated, so several work sites were closed.
Till September, most of the country was in lockdown in some form or the other. It is only after September, many of the work sites for capital works opened. So trying to force people to spend money at that time would have led to agencies simply releasing the money and it would have landed up in somebody’s bank account without being spent. We felt timing was important. The expenditure push should be timed after artificial health restrain on activities has ended. Now when you spend, it results in activities. Earlier, if we had spent, it may not have resulted in activities, but it would have worsened our fiscal position.
Though experts argue that starting June, lockdown was eased and government could have pushed expenditure in the second quarter.
It’s not correct. Easing was gradual, there were many containment zones. Even if part of a state is in containment zone, transportation, workers are affected. Even your engineer may be caught in a containment zone. So lots of obstacles were there.
While government has talked about a V-shaped recovery in the economy, the discussion among economists is about a K-shaped recovery with the vulnerable and poor being impacted disproportionately with massive job losses in the informal sector. Many argue that the Budget has little for this section of the society.
I wouldn’t agree. A lot of the commentary looks only at cash support. In our system, we provide income support in kind. We provided free food including pulses to 800 million people for eight months till November. That is a big fiscal push. The fact that it comes from an existing system doesn’t make it to be not a fiscal push. And other countries don’t have the system, so they give cash handouts and then people buy the food. In our case, we directly transfer food, gas cylinders and we have also provided some cash transfers.
So, it is not accurate so say that the vulnerable have been left out. A lot of steps have been taken to protect the vulnerable. Going forward the infrastructure push, resumption of capital projects will provide a lot of assistance to them. And they are already bearing to see some tapering of the demand in the rural employment.
The covid vaccination programme for which government has provided ₹35,000 crore, will it be a central scheme or states have to contribute to it? And will it be free for everybody?
That is yet to be decided. A decision will be taken by the health ministry in consultation with Niti Aayog. So the manner of funding etc they will decide.
But shouldn’t the Budget be making such things clear because states will have to plan and prepare their budgets accordingly.
The ongoing vaccination programme for 3 crore people, it is fully funded by the centre. When we come to a more advanced stage of the first phase of vaccination, it will be decided separately after consultation with states. It will be decided much before the start of the next financial year.