India's enigmatic fisc

by Manasi Swamy

The central government froze public expenditure at its year-ago level of Rs.8.2 trillion in the first quarter of 2021-22. This was the quarter of the second wave of Covid-19 that saw several intermittent lockdowns in different parts of the country and when India’s public health infrastructure was seen seriously failing to meet the challenges of rising infections and deaths. The central government utilised 23.6 per cent of its full year’s budgeted expenditure. There was no extra fiscal push during the period of the second wave of Covid-19. On the contrary, the government also announced austerity measures on June 30, 2021, capping expenditure by various ministries and departments in the September 2021 quarter at 20 per cent of their annual budget allocations. The government’s actions both, in controlling expenses during a crisis and imposing austerity measures remains inexplicable.

The government spent Rs.7.1 trillion on revenue account in the June 2021 quarter. This was 2.4 per cent lower than the spending on this account in the previous year. The previous year’s first quarter was the peak of the first wave of Covid-19 in India. Central government revenue spending then had increased y-o-y by 10.5 per cent which was higher than the average growth of 6.4 per cent seen in the preceding two first quarters. But it wasn’t high enough to explain the contraction in revenue spending in the current year’s first quarter.

Interest payments peaked at Rs.1.8 trillion, marking a 14.8 per cent rise over the June 2020 quarter. Expenditure on major subsidies rose y-o-y by 26.8 per cent to Rs.1 trillion. It was other revenue expenditure that bore the brunt of the decline. These fell by 12.8 per cent to Rs.4.3 trillion.

A bulk of the subsidy payments during the June 2021 quarter went towards purchase and distribution of free and subsidised foodgrain. Food subsidy disbursals doubled to Rs.822 billion from Rs.410 billion in the June 2020 quarter. Of this, Rs.745 billion were transferred to Food Corporation of India (FCI) against subsidy claims of Rs.1.6 trillion raised by it. The government owed Rs.843 billion to FCI as of June 30, 2021. This is the expenditure FCI has already incurred on behalf of the government which has not been included in the latter’s expenditure for the June 2021 quarter.

A third of the ministries that are responsible for revenue expenditure excluding interest and subsidies reported y-o-y contraction in spending in the June 2021 quarter. These include even those ministries that control expenditure which is crucial for both, short-term and long-term growth of the economy.

The Ministry of Agriculture & Farmers Welfare reported a 15.2 per cent y-o-y contraction in revenue expenditure to Rs.315 billion in the June 2021 quarter. Expenditure on (civil and defence) declined by 29.5 per cent to Rs.424 billion. The Ministry of Rural Development, which runs the flagship MGNREGS, also reported a steep y-o-y contraction of 50.7 per cent in revenue expenditure to Rs.432 billion.

The Centre increased transfers to the state governments by 21.1 per cent to Rs.621 billion and those to UTs by 49.1 per cent to Rs.137 billion during April-June 2021. Yet, the states were not flush with funds from the Centre as it cut devolution of funds, which is the states’ share in central taxes, by Rs.165 billion despite making record tax collections during the June 2021 quarter.

The government raised its capital expenditure in the June 2021 quarter by 26.3 per cent to Rs.1.1 trillion. This was also the highest capital expenditure incurred by the Central Government in the first quarter of any year. However, when seen in comparison to the full year’s budget estimate the progress of capital expenditure appears slow. The government has budgeted for Rs.5.5 trillion of capital expenditure for 2021-22, of which it spent only 20.1 per cent during the first quarter.

The slow pace of public expenditure is quite intriguing, particularly when the government had mobilised enough funds in the form of non-debt receipts and market borrowings to be able to finance higher expenditure. But it rather chose to sit on a huge cash pile of Rs.1.6 trillion.

The government garnered Rs.5.5 trillion of non-debt receipts during April-June 2021. These are the highest receipts it has mobilised in the first quarter of any fiscal. Net tax receipts peaked at Rs.4.1 trillion, helping the government achieve 30.2 per cent of its full-year tax collection target. The government usually manages to garner only about 12 per cent of its annual budgeted tax receipts in the first quarter. The tax buoyancy seen in the June 2021 quarter is unfathomable. There were no major hikes in tax rates except customs duty on a few products. Economic activity also was way below its pre-Covid level as suggested by various lead indicators.

The government’s non-tax revenues too jumped to Rs.1.3 trillion during April-June 2021 from Rs.152 billion during the same period last year. This exceptionally high growth in non-tax revenues is not sustainable as Rs.991 billion of these were contributed by the Reserve Bank of India (RBI) in the form of a handsome dividend. The RBI traditionally passed on its surplus to the government in July-August. This year, it transferred the surplus early, in May, after changing its accounting year to April-March from July-June earlier. Non-tax revenues earned by the government in the June 2021 quarter accounted for 26.7 per cent of its full year budget estimate.

The government saw its non-debt capital receipts double to Rs.74 billion during April-June 2021 from Rs.36 billion a year ago. Sale of SUUTI’s stake in Axis Bank worth Rs.40 billion in May 2021 helped the government report this jump. The disinvestment target of Rs.1.75 trillion for fiscal year 2021-22 still remains a challenge.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.5 +0.1
Consumer Sentiments Index
Base September-December 2015
78.9 +0.7
Consumer Expectations Index
Base September-December 2015
77.3 +0.4
Current Economic Conditions Index
Base September-December 2015
81.5 +1.1
Quarterly CapEx Aggregates
(Rs.trillion) Dec 21 Mar 22 Jun 22 Sep 22
New projects 4.03 8.48 4.39 3.27
Completed projects 2.77 1.32 1.20 1.14
Stalled projects 0.08 0.43 0.27 0.06
Revived projects 1.98 0.32 0.29 0.07
Implementation stalled projects 0.66 0.09 0.29 0.03
Updated on: 06 Oct 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 21 Dec 21 Mar 22 Jun 22
All listed Companies
 Income 27.5 23.4 20.8 40.3
 Expenses 26.7 21.3 19.9 41.7
 Net profit 55.7 35.4 30.6 20.4
 PAT margin (%) 9.6 9.0 8.8 7.3
 Count of Cos. 4,705 4,754 4,656 4,572
Non-financial Companies
 Income 35.7 29.2 24.8 50.3
 Expenses 36.1 28.8 25.7 53.4
 Net profit 58.0 19.2 9.8 7.8
 PAT margin (%) 8.7 7.5 7.6 5.9
 Net fixed assets 4.9 2.0
 Current assets 11.1 15.2
 Current liabilities 0.9 11.9
 Borrowings 12.2 3.6
 Reserves & surplus 12.6 11.2
 Count of Cos. 3,398 3,443 3,382 3,354
Numbers are net of P&E
Updated on: 06 Oct 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.0 25.9
 Expenses 0.4 -3.2 24.4
 Net profit -6.2 73.6 62.9
 PAT margin (%) 2.0 4.3 8.6
 Assets 9.0 9.9 9.6
 Net worth 4.8 12.0 14.2
 RONW (%) 3.3 6.8 12.4
 Count of Cos. 32,743 31,040 6,560
Non-financial Companies
 Income -1.1 -2.0 32.4
 Expenses -0.9 -3.9 31.9
 Net profit -22.5 61.2 59.8
 PAT margin (%) 2.2 3.9 7.4
 Net fixed assets 11.4 2.3 1.9
 Net worth 2.1 10.3 14.7
 RONW (%) 4.6 7.6 13.8
 Debt / Equity (times) 1.2 1.0 0.7
 Interest cover (times) 1.9 2.4 4.7
 Net working capital cycle (days) 82 87 54
 Count of Cos. 25,923 24,408 4,771
Numbers are net of P&E
Updated on: 05 Oct 2022 12:29PM