Home / Economy / FinMin tells govt depts, ministries to cut expenses

India’s finance ministry has asked all ministries and departments to cut “avoidable, wasteful and controllable" expenses such as overtime allowance and travel by 20% amid concerns that the fiscal deficit may overshoot the FY22 target of 6.8% of GDP due to rising covid-related bills.

“The government has decided all ministries/departments should take steps to curb wasteful/avoidable expenditure and aim for a 20% reduction in controllable expenditure. All the ministries/departments are requested to take steps to curtail all avoidable non-scheme expenditure and aim for a 20% reduction in controllable expenditure, in compliance with the above decision. Expenditure in 2019-20 may be taken as the baseline for this purpose," according to a directive from the finance ministry’s department of expenditure, a copy of which was reviewed by Mint.

The heads under which expenses need to be controlled include overtime allowance, rewards, domestic and foreign travel expenses, office expenses, rents and taxes, royalty, publications, other administrative expenses, supplies and materials, cost of ration, fuel bills, clothing, advertising and publicity, minor works and maintenance, and general grant-in-aid and contributions.

While the finance ministry has not announced any fiscal stimulus measures yet following the second wave of the pandemic, it has extended free foodgrain to 800 million beneficiaries for seven months, starting May, which may cost the exchequer around 89,000 crore in FY22. It has also increased the fertilizer subsidy bill by 14,776 crore. The centralized vaccine procurement will reportedly cost an additional 15,000-20,000 crore over the 35,000 crore already allotted.

The Centre may also need to borrow 1.6 trillion more to meet a shortfall in Goods and Services Tax compensation to states. While the Reserve Bank of India’s transfer of 99,122 crore to the Centre— 45,612 crore more than the budget estimate—may provide some cushion to government finances, experts already see significant fiscal slippage in FY22.

“The increase in the quantum of fiscal deficit coupled with the decline in GDP would potentially push up the fiscal deficit to 7.5% to 7.7% of GDP in FY22, which is a 0.7 to 0.9 percentage point increase over the budget estimate. As such, the fiscal consolidation intentions of the government would necessarily have to be deferred," said Madan Sabnavis, chief economist at Care Ratings.

Madhavi Arora, lead economist at Emkay Global Financial Services, said despite the projected slippage, the macroeconomic effects of fiscal policy will still be negative in FY22.

“Given the limited efficacy of monetary easing currently, continued countercyclical fiscal policy support—and avoiding a premature consolidation—remain crucial," she said.

In a virtual meeting on Friday with senior government officials to discuss the infrastructure road map, finance minister Nirmala Sitharaman asked ministries to front-load their FY22 capital expenditure and explore public-private partnerships, holding that enhanced capex will play a critical role in revitalizing the economy post the pandemic. The budget for FY22 provided a capital outlay of 5.54 trillion, a sharp increase of 34.5% over the budget estimate of FY21.

A query sent to the finance ministry didn’t elicit any response until press time.

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