Data dive: What the Centre's demand for additional funds tells us about the economy

This fiscal year, the first tranche of the demands, tabled last week, has been one of the lowest in recent years, with the net cash outgo the lowest since 2021-22. Economists say the low demand for grants is an indication of better financial planning and fewer economic shocks. (Net cash outgo is the effective amount the Centre will likely overspend after taking into account savings or higher receipts.)

But data for the past three years show that subsidies, especially for fertilisers, have been a pain point for the government. This year, too, fertiliser subsidy is one of the items with the biggest net cash outgo planned.

The Union government had budgeted ₹1.6 trillion towards fertiliser subsidy in 2024-25, down from ₹1.89 trillion in the previous year. It has now sought an additional ₹6,594 crore towards fertiliser subsidy. 

The additional funding needed is mainly due to a possible underestimation in the budget, higher agricultural activity and elections in key agriculture-dominated states, economists said.

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Fertiliser subsidies are linked to international prices and often see adjustments based on volatility in the market. In 2022-23, nearly ₹1.5 trillion was needed over and above the budgeted amount of ₹1.1 trillion mainly due to the surge in prices following the Russia-Ukraine war.

Economic arithmetic

This year, prices of diammonium phosphate (DAP), a key fertiliser used in winter crops, have shot up since October. China has also imposed export restrictions on some fertilisers, leading to price pressures.

Overall, the agriculture sector has received the most attention this year, with demand for additional funding of ₹7,692 crore for the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) scheme and other related ones. 

This comes against the backdrop of farmers’ unrest in the country. The outlay for the PM-Kisan scheme, which provides an income support of ₹6,000 annually to all land-holding farmer families, has remained unchanged in recent years. 

“Many agri-oriented states like Maharashtra and Haryana have gone to elections this year. Ideally, the government would want the cash to be rolled out on time and be more proactive," said Yuvika Singhal, an economist at QuantEco Research.

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Notably, the Mahatma Gandhi National Rural Employment GuaranScheme, a key policy tool for the government to manage unemployment and the slowdown in the rural economy, did not make it to the first supplementary demand for grants, possibly due to anticipation of low demand for rural jobs amid robust agricultural activity.

Fiscal maths

The government’s smaller demand for grants, for now, suggests fine fiscal management, and the cherry on top would be adherence to the fiscal deficit target. A net cash outgo of ₹44,000 crore in the first tranche and a bigger demand in the second tranche are unlikely to disrupt the fiscal maths, thanks to lower capital expenditure spending.

The government has utilised only 42% of the budgeted amount in April-October this year, the lowest in several years, partly due to disruptions related to the general election. However, economists expect the spending to pick up in the second half of the year, with the budget target being undershot by about ₹1 trillion.

“There will be additional savings that will flow through from various other ministries, and we presume, mostly on the capex, which will further provide an offset to this modest cash demand," said Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership.

While lower capital spending will give the government the room to move around the money where it is needed without disrupting the fiscal maths, it may prove detrimental to the economic growth, which slumped to a seven-quarter low of 5.4% in July-September.

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