Government cuts expenditure amid 2nd wave of Covid-19

by Manasi Swamy

The central government’s fiscal response to the second wave of Covid-19 so far has been timid. While it has not announced any fiscal stimulus to arrest the derailment of the economy from its nascent recovery path, it has also refrained from spending its expenditure budgeted for 2021-22 on a pro rata basis. The government went slow on expenditure despite making robust tax collections in April 2021.

In April 2021, the government spent Rs.2.27 trillion, which was only 6.5 per cent of its annual budgeted expenditure of Rs.34.8 trillion. Ideally in a situation when the country is witnessing lockdowns, a slowdown in business activity and huge job losses, its government would be expected to increase its expenditure or at least front-load the expenditure it has budgeted for the fiscal year. But the central government did none. It spent even lesser than what it should have spent in April 2021 from the annual budgeted target on pro rata basis, which works out to Rs.2.9 trillion.

The government’s spending in April 2021 was 26.2 per cent lower than the Rs.3.07 trillion it had spent in the year-ago month. April 2020 was an extra-ordinary month in terms of government expenditure. A year-on-year fall in government expenditure in April 2021 therefore is not alarming. But, the magnitude of the fall in the midst of the second wave is disconcerting. This is particularly so when we compare government expenditure in April 2021 at Rs.2.27 trillion the the average expenditure of Rs.2.4 trillion incurred in April of 2017, 2018 and 2019.

Revenue expenditure of the government declined y-o-y by 35.6 per cent to nearly Rs.1.8 trillion in April 2021. It was 12.3 per cent lower than the average revenue expenditure in April of 2017, 2018 and 2019. Capital expenditure, on the other hand, shot up by 66.5 per cent to Rs.471 billion in April 2021, after falling by 7.5 per cent in April 2020. It was 33.4 per cent higher than the April average of 2017, 2018 and 2019. Bulk of the capital expenditure in April 2021 was incurred by the ministry of road transport & highways and the ministry of railways.

Among revenue expenditure, interest outgo, which is a non-productive spending, increased by 11.1 per cent to Rs.297 billion in April 2021. The rise came on top of 36.5 per cent increase recorded in April 2020. Expenditure on subsidies, on the other hand, declined by 15.2 per cent to Rs.374 billion in 2020-21, after contracting by an even steeper 36.1 per cent in April 2019.

Revenue expenditure by the ministry of agriculture & farmers’ welfare slumped by 79.9 per cent to Rs.51.8 billion in April 2021. But when compared to the average of April 2017, 2018 and 2019, it was higher by 12.7 per cent. Last year, the Centre had transferred Rs.177.9 billion to farmers under the PM-Kisan Samman Nidhi (PM-KISAN) since it announced the nation-wide lockdown up till April 21, 2021. This year, the PM-KISAN funds were released a little late, in May, which explains the steep y-o-y fall in expenditure by the ministry of agriculture & farmers’ welfare in April 2021.

The ministry of rural development, which runs the Centre’s flagship employment guarantee scheme MGNREGS, provided 341 billion persondays of employment in April 2021, which was 140.8 per cent higher than in April 2020 and 47.8 per cent higher than the average of April 2017, 2018 and 2019. Yet, revenue expenditure by the ministry of rural development in April 2021 at Rs.43.7 billion was a sharp 88.5 per cent lower than in April 2020 and 77 per cent lower than the April average of preceding three years. This is because the ministry under-provided for MGNREGS expenses during the month. As per the data released by the ministry on its MGNREGA website, only Rs.34 billion were made available to the scheme in April 2021 as against a requirement of Rs.81.5 billion, leaving a deficit of Rs.47.5 billion. The deficit means that payments to labour and for raw material were delayed.

Revenue expenditure by the ministry of health & family welfare declined y-o-y by 54.3 per cent to Rs.59 billion in April 2021. It was, however, 88.3 per cent higher than the average expenditure reported by the ministry for the month of April of 2017, 2018 and 2019.

The Centre’s transfers of funds to state governments and UTs have been rising progressively for the past few years. From an average of Rs.57.1 billion in the April of 2017, 2018 and 2019, these increased to Rs.215.6 billion in April 2020 and further to Rs.290 billion in April 2020. The increase in April 2021 is not surprising as the Centre has given the responsibility of Covid-19 vaccinations to the states and has provided for a support of Rs.350 billion for the same in the Union Budget 2021-22.

Transfers by the revenue department under the ministry of finance had surged from an average of Rs.1.3 billion in April 2017, 2018 and 2019 to Rs.154 billion in April 2020 as the Centre cleared GST compensation dues of states for November 2019-February 2020 worth Rs.141 billion in April 2020. But, this year in April, expenditure by the revenue department dropped to Rs.893 million.

The government did not have any financing constrains. It went slow on expenditure in April 2021 despite making robust gross tax collections of Rs.1.7 trillion. These were the highest tax collections made by the Centre in the month of April ever. The April 2021 gross tax collections were two-and-a-half times the collections made in April 2020 and 66.8 per cent higher than the average tax collections made in April of 2017, 2018 and 2019.

Despite making record tax collections, the government reduced states’ share in Central taxes. Its devolution of tax revenue to the states at Rs.391.8 billion in April 2021 was 14.9 per cent lower than last year and 23.4 per cent lower than the preceding three years’ average for April. Transfer of taxes from the Centre is a major source of revenue for state governments. Lower devolution of taxes by the Centre in April 2021 could have affected ability of the state governments to spend.

Non-tax revenues in April 2021 at Rs.168.1 billion were also 191.2 per cent higher than in April 2020 and four per cent higher than the April average of 2017, 2018 and 2019. Non-debt capital receipts in April 2021 were quite anaemic at Rs.3.7 billion in absence of any progress on the disinvestment front.

The government utilised its record revenues in April 2021 to reduce its fiscal deficit to Rs.787 billion. This is the lowest deficit it has reported in the month of April since 2012-13.

References
1. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001031010000000000&repnum=20448&frequency=M&colno=1
CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.5 -0.3
Consumer Sentiments Index
Base September-December 2015
58.0 0.0
Consumer Expectations Index
Base September-December 2015
60.6 +0.5
Current Economic Conditions Index
Base September-December 2015
53.9 -0.8
Quarterly CapEx Aggregates
(Rs.trillion) Dec 20 Mar 21 Jun 21 Sep 21
New projects 1.50 2.20 2.55 1.10
Completed projects 0.87 1.17 0.73 0.92
Stalled projects 0.30 0.26 0.32 0.03
Revived projects 0.15 0.22 0.12 0.19
Implementation stalled projects 0.20 0.32 0.25 0.22
Updated on: 21 Oct 2021 3:28PM
Quarterly Financials of Listed Companies
(% change) Dec 20 Mar 21 Jun 21 Sep 21
All listed Companies
 Income 1.6 14.9 42.0 18.3
 Expenses 0.1 7.3 42.2 18.2
 Net profit 58.3 326.2 125.3 28.0
 PAT margin (%) 8.4 8.9 9.0 17.1
 Count of Cos. 4,451 4,364 4,348 178
Non-financial Companies
 Income 0.1 17.4 60.7 21.8
 Expenses -0.7 10.5 62.8 23.2
 Net profit 52.4 221.6 179.7 27.0
 PAT margin (%) 8.8 9.1 8.4 16.3
 Net fixed assets 2.3 7.4
 Current assets 4.4 13.2
 Current liabilities 0.8 17.4
 Borrowings -4.3 3.0
 Reserves & surplus 11.9 4.2
 Count of Cos. 3,299 3,252 3,251 130
Numbers are net of P&E
Updated on: 21 Oct 2021 3:28PM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.3 0.2 -1.7
 Expenses 13.6 0.2 -4.3
 Net profit 15.2 -10.4 50.0
 PAT margin (%) 2.1 2.1 7.3
 Assets 9.8 8.5 12.9
 Net worth 8.5 4.5 13.7
 RONW (%) 3.8 3.5 9.0
 Count of Cos. 32,100 31,012 5,853
Non-financial Companies
 Income 14.0 -1.7 -4.1
 Expenses 14.2 -1.4 -6.2
 Net profit 21.2 -21.2 37.6
 PAT margin (%) 2.9 2.3 6.8
 Net fixed assets 5.6 10.0 2.6
 Net worth 7.9 2.1 11.6
 RONW (%) 6.4 4.9 9.9
 Debt / Equity (times) 1.0 1.1 0.7
 Interest cover (times) 2.3 1.9 3.7
 Net working capital cycle (days) 74 81 70
 Count of Cos. 25,659 24,739 4,261
Numbers are net of P&E
Updated on: 19 Oct 2021 1:55PM