Govt spending in FY21 much less than projected, will not spur demand: CMIE – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/finance/govt-spending-in-fy21-much-less-than-projected-will-not-spur-demand-cmie/articleshow/80705614.cmsSynopsis

According to CMIE, the big numbers of 2020-21 were used largely to regularise government books of accounts and partly to provide relief and not to revive the economy.

The government’s estimated increase in spending for 2020-21 may be only 17.3% and not 28.4% as projected by the government and will not spur demand, the Centre for Monitoring Indian Economy said.

The government had budgeted an expenditure of Rs 30.4 lakh crore in 2020-21 which was raised to Rs 34.5 lakh crore in the revised estimates while the expenditure in 2019-20 stood at Rs 26.9 lakh crore.

“This increase is essentially because the government has made a provision of food subsidy in 2020-21 for discontinuation of National Small Savings Fund (NSSF) loans to the Food Corporation of India,” CMIE said in its weekly analysis.

Citing the data by the Controller General of Accounts (CGA), CMIE said the government had spent Rs 1.25 lakh crore on food subsidy by December 2020 while the revised estimates presented by the finance minister in the budget suggest that it would spend Rs 4.22 lakh crore on food subsidy in the full year. This large increase of nearly Rs 3 lakh crore in the last quarter seems to be arising out of a one-time settlement of FCI’s borrowings from NSSF, CMIE said.

“If this is the case as it seems to be so, this is, in reality, not an expenditure of 2020-21 but a settlement of past dues of the government. It increases government borrowing but it does not increase spending in a sense that could spur demand,” CMIE added.

According to CMIE, if one therefore reduces this Rs 3 lakh crore of settlement from the revised estimate of Rs 34.5 lakh crore we get a more comparable expenditure estimate for 2020-21.

“This, at Rs 31.5 lakh crore works out to a far more modest increase in government spending in 2020-21 at 17.3%,” it said, cautioning it will be a daunting task to achieve this level of spending considering that the hike in expenditure till December 2020 was only 8%.

“To achieve the 17.3% growth in the year, the government requires to increase its spending over the last quarter of 2020-21 by nearly 51%. This could be very difficult, unless the government uses the opportunity to clean up the books a little more,” CMIE added.

According to CMIE, these big numbers of 2020-21 were used largely to regularise government books of accounts and partly to provide relief and not to revive the economy.

“The government has therefore continued to be fiscally frugal even in the year of the crisis,” CMIE said. As per CMIE, if we consider the adjusted expenses of 2020-21 (Rs 31.5 lakh crore), the growth would be 10.6%.

According to CMIE, the 10% growth in government spending in 2021-22 is just the average growth in spending that the central government has done in the past ten years. “This arguably, is lower than what would be required to help the economy recover from the deep contraction it suffered in 2020-21,” it added.

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