Government spending is business as usual

by Manasi Swamy

The Central Government increased its expenditure by 11.3 per cent to Rs.10.5 trillion during April-July 2020 compared to its year-ago level. The thrust was on revenue expenditure which rose by 12.2 per cent to Rs.9.4 trillion. Capital expenditure, at Rs.1.1 trillion, was only 3.9 per cent higher than its year-ago level.

Monthly trend in the expenditure has been quite volatile during this fiscal. Expenditure grew y-o-y by 20.6 per cent in April, but contracted by 20.7 per cent in May. It surged once again by 45.7 per cent in July, but the growth slid to a mere 5.6 per cent in July. While such volatility in government expenditure is not new, it reveals spending patterns that are as-usual even under unusual conditions of the lockdown. Central government spending was budgeted to grow by 12.7 per cent before the pandemic hit India. The spending growth so far, in the midst of a crisis, at 11.3 per cent is lower than the targeted annual spending and is also much lower than the 16 per cent expenditure growth registered in the previous financial year.

The government’s cumulative expenditure till July 2020 reveals that the spending is targeted into specific directions, but the quantum is far from adequate to pull the economy out of the recessionary phase it has entered into.

The Ministry of Rural Development, which runs the flagship Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), increased its expenditure to Rs.1 trillion during April-June 2020. This was 2.5 times the expenditure incurred by the ministry during the same period a year-ago. During the first five months of fiscal year 2020-21 itself, the government provided 1,908 million persondays of employment to 57.2 million households under the MGNREGS, as compared to 2,653 million persondays of employment provided to 54.8 million households during the entire fiscal year 2019-20. This played a crucial role in mitigating the adverse effects of the lockdown-induced reverse migration on the rural economy.

The government is now planning to extend the MGNREGS to workers in cities left unemployed due to the lockdown. According to Sanjay Kumar, Joint Secretary, Ministry of Housing and Urban Affairs, when approved, the program would be first rolled out in smaller cities with an outlay of Rs.350 billion. The government’s expenditure on urban areas through this ministry has remained subdued this year. The ministry spent Rs.100 billion during April-July 2020, 29.7 per cent lower than its spending during the same period of last year.

The Centre raised transfer of funds to states and union territories (UTs) by 35 per cent y-o-y to Rs.784.5 billion during April-July 2020. Fund transfers to UTs without legislature trebled to Rs.146.2 billion from Rs.49.2 billion during April-July 2019. The benefits of these additional transfers however, were negated by a 12 per cent decline in devolution of taxes from the Centre to states during April-July 2020.

The Central Government’s revenue department reported cash outgo of Rs.657.8 trillion during April-July 2020, more than double the amount reported during the same period a year ago. The primary activity of this department is to transfer GST compensation cess to the states. A large portion of its cash outgo in the current fiscal went towards clearance of Rs.517.4 billion GST compensation arrears of states for the period November 2019-February 2020.

Since the introduction of GST in July 2017, the Centre paid Rs.2.97 trillion compensation to states for loss of their revenues, while it could garner only Rs.2.39 trillion through compensation cess. Faced with acute shortage of funds itself, the Centre has now refused to compensate states over and above its compensation cess collections.

The Ministry of Health and Family Welfare increased its spending by 34.2 per cent y-o-y to Rs.270.6 billion during April-July 2020 in response to the Covid-19 pandemic. The Ministry of Agriculture stepped up its spending by 41.2 per cent to Rs.505.3 billion. Of this, nearly Rs.200 billion were utilised for PM-KISAN scheme which provides an aid of Rs.6,000 per annum to farmers with less than 2 hectares of land holding in three equal installments.

Among committed expenditures of the government, cash outgo on interest payments increased by eight per cent y-o-y to nearly Rs.2 trillion and that on pension, both civil and defence, rose by 22 per cent to Rs.753.3 billion. Expenditure on police, on the other hand, declined by 10 per cent y-o-y to Rs.336.3 billion during April-July 2020.

The other committed spending of the government is its outgo on subsidies. But, the government managed to bring it down by 38.3 per cent to Rs.1.04 trillion during April-July 2020. While its petroleum subsidy outgo shrank by 42 per cent to Rs.164.6 billion owing to sharp drop in crude oil prices and hike in prices of subsidised LPG cylinders, it curtailed its fertiliser subsidy outgo at Rs.311.3 billion, five per cent lower than during April-July 2020, by delaying the payments. Satish Chander, Director General, Fertiliser Association of India, claimed that the government owed Rs.500 billion subsidy arrears to fertiliser companies at the beginning of 2020-21.

The biggest saving of all was done on food subsidy. Cash outgo on food subsidy shrank by 47.4 per cent y-o-y to Rs.570.5 billion during April-July 2020. But, this was an artificial curtailment of spending by deferring the government’s liabilities towards Food Corporation of India (FCI). As against the FCI’s subsidy claim of Rs.1.4 trillion for April 1-19, 2020, the government disbursed only Rs.570.5 billion during April-July 2020. The FCI had to tap other sources for meeting its funds requirement. This is reflected in the 26.3 per cent y-o-y rise in food credit disbursed by scheduled commercial banks (SCBs) at end-July 2020. Besides, the Centre had already made an arrangement for the FCI borrowing Rs.1.36 trillion from the National Small Savings Fund (NSSF) to finance its food subsidy bill in the Union Budget 2020-21. The FCI owed Rs.2.5 trillion to the NSSF as of March 31, 2020.

Despite these pseudo curtailment of subsidies, the government’s fiscal deficit shot up by 50 per cent to Rs.8.2 trillion during April-July 2020.

References
1. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001031010000000000&repnum=20448&frequency=M&colno=1
2. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001031010000000000&repnum=20427&frequency=M&colno=1
CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.0 -0.8
Consumer Sentiments Index
Base September-December 2015
46.5 -0.4
Consumer Expectations Index
Base September-December 2015
48.7 -0.6
Current Economic Conditions Index
Base September-December 2015
43.0 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 19 Dec 19 Mar 20 Jun 20
New projects 3.25 5.55 3.91 0.68
Completed projects 0.84 1.66 1.73 0.24
Stalled projects 0.41 0.61 0.76 0.11
Revived projects 0.43 0.83 0.42 0.59
Implementation stalled projects 0.91 0.13 9.76 0.08
Updated on: 24 Sep 2020 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 19 Dec 19 Mar 20 Jun 20
All listed Companies
 Income -2.3 -1.7 -4.9 -28.1
 Expenses -3.1 -2.2 -1.8 -28.4
 Net profit -1.3 -10.8 -47.4 -41.1
 PAT margin (%) 5.3 5.1 2.4 5.3
 Count of Cos. 4,452 4,431 4,244 4,112
Non-financial Companies
 Income -6.3 -5.5 -8.9 -38.4
 Expenses -6.7 -6.4 -4.9 -38.4
 Net profit -13.8 -13.8 -48.4 -60.2
 PAT margin (%) 5.7 5.7 3.4 4.2
 Net fixed assets 10.4 12.9
 Current assets 4.9 3.0
 Current liabilities 5.0 4.8
 Borrowings 8.3 14.7
 Reserves & surplus 5.7 2.1
 Count of Cos. 3,328 3,307 3,198 3,098
Numbers are net of P&E
Updated on: 24 Sep 2020 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.4 1.2
 Expenses 9.9 13.6 1.6
 Net profit -40.3 21.9 -12.3
 PAT margin (%) 2.0 2.4 5.1
 Assets 10.9 9.3 9.9
 Net worth 7.5 8.6 6.8
 RONW (%) 3.5 4.3 7.2
 Count of Cos. 27,531 26,568 2,842
Non-financial Companies
 Income 8.7 13.9 -2.3
 Expenses 8.8 14.0 -1.6
 Net profit -9.0 25.0 -19.7
 PAT margin (%) 2.7 3.2 5.8
 Net fixed assets 7.1 5.3 16.0
 Net worth 6.1 8.6 3.9
 RONW (%) 5.7 6.9 9.6
 Debt / Equity (times) 1.0 1.0 0.7
 Interest cover (times) 2.1 2.4 3.6
 Net working capital cycle (days) 77 70 47
 Count of Cos. 22,401 21,603 2,134
Numbers are net of P&E
Updated on: 20 Sep 2020 8:59PM