The finance ministry on Wednesday admitted that the cash position of the government may be stressed in the June quarter of FY21 due to the ongoing nationwide lockdown and put departments in three categories assigning a separate monthly and quarterly expenditure plan for each category.
“The existing guidelines for expenditure control have been reviewed. Keeping in view the present situation arising out of covid-19 and the consequential lockdown, it is expected that the cash position of government may be stressed in Q1 of 2020-21. Considering this, it is essential to regulate the government expenditure and to fix the quarterly expenditure plan (QEP) and monthly expenditure plan (MEP) of specific ministries and departments," the Economic Affairs Department in the finance ministry said in a notification.
In Category-A, departments such as agriculture, pharmaceuticals, civil aviation, consumer affairs, health can spend as per existing guidelines and no restrictions have been put on them. This category also includes interest payments and transfers to states and funding of important institutions such as Central Vigilance Commission and Supreme Court of India.
Expenditure heads in Category-B which includes agriculture research, fertiliser, posts, defence pension, police, Election Commission have been asked to restrict overall expenditure in June quarter to 20% of budget estimate for FY21. The finance ministry has advised such departments to keep monthly expenditure in April at 8% of FY21 allocation and 6% each in May and June.
Under Category-C, finance ministry has put departments such as atomic energy, coal, culture, housing and urban affairs that will be able to spend only 15% of their full year budget allocation in June quarter and 5% in each of the three months.
“Any deviation from the guideline would require prior approval from Ministry of Finance," the notification said.
For the last financial year FY20 also in an effort to contain fiscal slippage, the finance ministry directed central government departments and ministries to limit expenditure in March quarter to 25% of their budget allocations instead of 33% as was the practice earlier, Mint reported on 28 February.
Government has announced ₹1.7 trillion relief package for the financially distressed sections of the society and is said to be preparing an economic stimulus package. Anubhuti Sahay, head of South Asia Economic Research (India) at Standard Chartered said combined fiscal deficit of centre and states may touch 9.8% of GDP in FY21 instead of the budgeted 6.4% of GDP. “Fiscal Responsibility and Budget Management Act (FRBMA) will have to be suspended, similar to during the Global Financial Crisis, as it does not allow a deviation of more than 0.5% of GDP from the deficit target, even under exceptional circumstances. The government should commit to achieve the combined fiscal deficit target of 6% of GDP set by the FRBMA by FY24," she added.