Government unwilling to spend

by Manasi Swamy

Central Government accounts for the first two months of fiscal 2021-22 reveal two intriguing facts. First, the government garnered record revenues during these two months when the country was hit by the second wave of Covid-19. And second, the government continued to not spend in spite of the increased revenues. Let’s take a look at the numbers in detail.

The Central Government reported non-debt receipts of Rs.3.5 trillion during April-May 2021. These are the highest non-debt receipts mobilised by the Centre during the first two months of any fiscal. The non-debt receipts accounted for 18 per cent of their annual budgeted target for fiscal year 2021-22. The Centre usually manages to achieve only five to seven per cent of its annual non-debt receipt target during the first two months of a fiscal.

In May 2021, the Reserve Bank of India (RBI) transferred a handsome dividend of Rs.991.2 billion to the Centre for the period July 2020-March 2021. Till last year, the RBI transferred its annual dividend to the Centre in August, two months after the closing of its accounting year that ran from July to next June. Last year, the RBI changed its accounting year to April-March, following which it transferred the dividend for nine months ended March 2021 to the government in May 2021. This pushed up the Centre’s non-tax revenue to Rs.1.2 trillion during April-May 2021. This was 10 times the non-tax revenue earned by the Centre during April-May last year and five times the average non-tax revenue earned during April-May of the five years preceding it.

It is not only the early receipt of RBI dividend that pushed up the Centre’s non-debt receipts to their record levels during April-May 2021. Net tax revenue also peaked at Rs.2.3 trillion, thereby helping the Centre achieve 15.1 per cent of its annual net tax revenue target in the first two months of the fiscal. Tax collections are usually lean in the first few months of any fiscal. The government managed to mobilise only 5.2 per cent of its annual budgeted taxes during the first two months in the last five years. This proportion drops even lower to 4.3 per cent when compared over a 10-year period.

Tax collections remained stronger than normal across-the-board. Income tax collections during April-May 2021 accounted for 13.7 per cent of their annual budgeted target, corporation tax collection accounted for 7.9 per cent, goods & service tax (GST) for 19.3 per cent, customs duty for 22.2 per cent and excise duty for 11 per cent.

Despite recording a whopping 147.9 per cent growth in gross tax collections to Rs.3.1 trillion, the states’ share in central taxes declined by 14.9 per cent to Rs.783.5 billion during April-May 2021.

The government spent 13.3 per cent of its annual budgeted expenditure during April-May 2021. This again, is intriguing. In the last five years, the government on an average spent 18.2 per cent of its annual budgeted expenditure during the first two months of the fiscal. The ratio was at 16.1 per cent when compared over a 10-year period. Government expenditure during April-May 2021 in this comparison is low.

The deficiency was mainly seen in capital expenditure. The government spent Rs.629.6 billion of its annual budgeted capital expenditure of Rs.5.5 trillion during the first two months of 2021-22. Although 14.1 per cent higher than last year, capital expenditure incurred by the government during April-May 2021 remained below its potential. The government spent only 11.4 per cent of its annual budgeted capital expenditure during April-May 2021. This lethargy in capital expenditure could have continued in June 2021 as Finance Minister Nirmala Sitharaman, on June 29, 2021 asked ministries and their central public sector enterprises (CPSEs) to front-load capital expenditure.

Revenue expenditure during April-May 2021 at Rs.4.2 trillion was 6.6 per cent lower than revenue expenditure incurred during the corresponding period of 2020, which itself was 0.2 per cent lower than the revenue expenditure incurred during the corresponding period of 2019. As proportion of the annual budgeted revenue expenditure also it was lower at 14.2 per cent during April-May 2021 when compared to the preceding 5-year average of 18.6 per cent and 10-year average of 16.1 per cent.

The Centre chose to keep its expenditure low despite having adequate resources to finance it. It was sitting on cash investments of Rs.1.2 trillion during April-May 2021.

Finance Minister, on June 28, 2021, announced a stimulus package of Rs.6.3 trillion for economic revival. A large part of this package comprises of loan guarantees. Additional fiscal outgo in the package for the current fiscal is to the tune of Rs.1.24 trillion. This includes Rs.938.7 billion of additional food subsidy for providing free foodgrain to poor till November 2021, Rs.147.8 billion of additional fertiliser subsidy and the Centre’s contribution of Rs.150 billion towards the paediatric health package of Rs.230 billion.

After inclusion of this additional spend, the Centre’s total expenditure during 2021-22 works out to Rs.36.1 trillion, 2.7 per cent higher than the expenditure accounted for in 2020-21. If we exclude one-time expense by the government on settlement of FCI’s Rs.2.44 trillion arrears last year, the growth in expenditure for 2021-22 works out to 10.4 per cent. In reality, the growth may turn out to be lower as the government is trying to cut other budgeted expenditure. It has asked ministries and departments to take steps to curtail all avoidable non-scheme expenditure and aim for 20 per cent reduction in controllable expenditure.

There was no fiscal push in the months of the second Covid-19 wave and there is apparently, none planned for the rest of the year. Intriguing.

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
6.9 -1.9
Consumer Sentiments Index
Base September-December 2015
52.1 0.0
Consumer Expectations Index
Base September-December 2015
54.8 0.0
Current Economic Conditions Index
Base September-December 2015
48.0 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 20 Dec 20 Mar 21 Jun 21
New projects 1.99 1.25 1.87 1.81
Completed projects 0.76 0.85 1.10 0.57
Stalled projects 0.06 0.31 0.14 0.16
Revived projects 0.25 0.15 0.21 0.12
Implementation stalled projects 0.09 0.15 0.30 0.27
Updated on: 28 Jul 2021 3:28PM
Quarterly Financials of Listed Companies
(% change) Sep 20 Dec 20 Mar 21 Jun 21
All listed Companies
 Income -6.3 1.6 15.0 34.0
 Expenses -10.3 0.1 7.4 34.8
 Net profit 47.5 58.0 304.2 75.7
 PAT margin (%) 8.3 8.4 9.1 12.9
 Count of Cos. 4,419 4,433 4,211 382
Non-financial Companies
 Income -10.5 0.2 17.7 51.1
 Expenses -14.2 -0.7 10.6 56.0
 Net profit 31.7 54.4 218.4 81.9
 PAT margin (%) 8.1 8.8 9.3 13.0
 Net fixed assets 5.9 2.3
 Current assets 0.7 4.8
 Current liabilities -2.7 0.8
 Borrowings 8.3 -4.3
 Reserves & surplus 4.2 12.3
 Count of Cos. 3,278 3,293 3,143 289
Numbers are net of P&E
Updated on: 28 Jul 2021 3:28PM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.4 0.0 2.8
 Expenses 13.8 -0.1 0.4
 Net profit 14.2 -7.3 33.8
 PAT margin (%) 2.1 2.1 9.5
 Assets 9.8 8.3 17.1
 Net worth 8.5 4.3 18.7
 RONW (%) 3.7 3.6 10.7
 Count of Cos. 31,492 30,180 1,463
Non-financial Companies
 Income 14.1 -1.9 -0.8
 Expenses 14.4 -1.7 -2.3
 Net profit 20.6 -18.4 15.0
 PAT margin (%) 2.9 2.4 10.9
 Net fixed assets 5.6 9.7 7.0
 Net worth 7.9 1.9 18.0
 RONW (%) 6.3 5.1 13.5
 Debt / Equity (times) 1.0 1.1 0.5
 Interest cover (times) 2.3 2.0 5.8
 Net working capital cycle (days) 73 80 32
 Count of Cos. 25,254 24,140 1,091
Numbers are net of P&E
Updated on: 28 Jul 2021 4:45PM