During the presentation of the Union Budget on February 1, finance minister Nirmala Sitharaman thanked the country’s taxpayers who, she said, had “contributed immensely and strengthened the hands of the government”. Sitharaman also made some big-ticket announcements, including raising the capital expenditure outlay by 35 per cent to Rs 7.5 lakh crore for the next financial year. However, what concerns taxpayers and experts is the tardy implementation, which creates a yawning gap between what is budgeted and what is eventually spent every year, with the labyrinthine central and state government machinery and the myriad processes of delivering funds creating enormous delays in execution.
The Covid pandemic has made matters worse, as is evident in the current financial year, leading to big gaps in government spending both at the central and state levels. Data from the Controller General of Accounts (CGA) shows that eight months into FY2021-22 (data is available only till November 2021), 40 per cent of the money set aside by the Center for expenditure had not been spent. According to the CGA, the central government’s total expenditure till November was Rs 20.7 lakh crore, as against Rs 34.8 lakh crore earmarked in Budget 2021-22. This means only 59.6 per cent of the earmarked expenditure had been achieved.
Slow spending
The government’s targeted capital expenditure for 2021-22 is Rs 5.54 lakh crore, but it achieved only 49 per cent of that (Rs 2.73 lakh crore) till November. Capital expenditure is money spent by the government on the development of machinery, equipment, buildings, health facilities, etc. as well as in acquiring fixed assets like land. Ministries are likely to step up their capital expenditure towards the end of the financial year.
The National Infrastructure Pipeline (NIP) was allocated Rs 44,700 crore, to be spent directly by the Department of Economic Affairs (DEA). The DEA’s total capital outlay for the financial year is Rs 56,500 crore. According to media reports, only 2 per cent, or Rs 1,150 crore, had been spent till November. The Central Board of Indirect Taxes and Customs had spent only Rs 5,100 crore from its departmental allocation of around Rs 20,100 crore.
Vinayak Chatterjee, chairman of Feedback Ventures, an infrastructure consultancy firm, estimates that only about 55 per cent of the capital expenditure earmarked by the government has been spent. “By this time of the financial year, the spending should have been about 66 per cent,” says Chatterjee. The year has seen two disruptions—first, the second Covid wave, which impacted projects during April-June, and the ongoing third wave caused by the Omicron variant. “The gap in spending can be attributed to the disruptions due to the Covid pandemic. So many workers reported sick, which led to delays in the execution of projects,” Chatterjee told india today. CGA data shows that in the pre-pandemic year of 2019-20, most ministries had nearly met their expenditure targets (90 per cent and above) compared to the revised estimates of expenditure announced by them.
For FY2021-22, the ministry of health and family welfare had an earmarked expenditure of Rs 73,931.8 crore. Of this, Rs 47,006 crore had been spent till November (about 64 per cent). As on April 2021, the states’ share of the total government spending on health was 69 per cent. The Center primarily transfers funds through the Finance Commission and departmental grants for centrally sponsored schemes implemented at the state level. According to a research paper by the New Delhi-based not-for-profit Health Systems Transformation Platform (HSTP), the key reasons for under-spending on healthcare are a weak health system, human resource constraints, governance issues and a complex process of procurement and construction.
Aanother reason is the time taken for the funds to reach the districts after being received by the states from the Centre. ‘Delays occur in the transfer of funds from the treasury to the National Health Mission head office and in fund transfers from the headquarters to district health societies, which have multiple bank accounts. This affects transparency and complicates the tracking of funds,’ states an April 2021 paper by Sudha Chandrashekar of HSTP and Sarit K. Rout of the Indian Institute of Public Health, Bhubaneswar.
The Jal Shakti ministry had till November spent only 34 per cent of what was earmarked for the financial year; it had spent 44 per cent in the corresponding period in the previous financial year. This when the ministry, under the Jal Jeevan Mission, is chasing an ambitious target of providing drinking water to all rural households by 2024. Of the estimated 189 million rural households, only 17 per cent had some version of tap water connection as on August 2021 .The Jal Jeevan Mission outlay has been estimated at Rs 3.6 lakh crore, of which Rs 2.08 lakh crore is the central government’s share. Chatterjee is of the view that despite the constraints, the Jal Jeevan Mission has made commendable progress.
But to speed up implementation, Chatterjee advocates aggressive efforts to rope in corporations, trusts, and Indian and overseas foundations, who may wish to participate by adopting a cluster of villages. “The evolution of pani samitis into local water utilities can be widened to include electricity, public health and education,” says Chatterjee. Meanwhile, of what was budgeted for 2021-22, the ministry of agriculture had spent only about half the sum till November, the AYUSH ministry 51 per cent, the coal ministry 60 per cent and the communications and education ministries 53 and 48 per cent, respectively (see Tripping on Execution,
On the revenue side, the government, till November, had achieved nearly 70 per cent of the targeted revenues for the financial year (Rs 13.7 lakh crore out of the total targeted receipts of Rs 19.7 lakh crore). Of the targeted tax revenues of Rs 15.4 lakh crore, it had achieved Rs 11.3 lakh crore. In November, the Center released Rs 95,082 crore to the states as their share of the divisible tax pool, thanks to the robust tax collections. This was twice the monthly devolution as per budget estimates. Uttar Pradesh, media reports say, received the largest share (Rs 17,057 crore), followed by Bihar (Rs 9,563 crore), Madhya Pradesh (Rs 7,464 crore), West Bengal (Rs 7,153 crore) and Maharashtra (Rs 6,006 crore). Tax devolution to states is done in 14 installations in a year and adjustments as per the revised estimate are usually made in March. But the question is: how efficiently are the states using the money?
States Slipping
States execute the major projects the Center plans and funds. For 2022-23, the Center will allocate Rs 1 lakh crore to the states to catalyse overall investments in the economy. These 50-year, interest-free loans will be over and above the usual borrowings allowed to the states. While several central schemes are running behind schedule, states are responsible for much of the problem, say experts. Data from the Reserve Bank of India’s state budget compendium, published in November, shows states to have lagged significantly in execution of programs, resulting in a huge gap between budgeted expenditure and the actual amount spent. Budgeted expenditure is for the entire year while revised estimates are projections on the basis of data for nine months of the fiscal. These projections are often higher than the budgeted expenditure.
However, when the actual expenditure is finally produced, it shows a huge shortfall. This can be gauged by a fall in the states’ budgeted deficit. A deficit occurs when government expenditure exceeds revenues from taxes and other sources. A higher budget deficit means the government has spent more than its revenue by undertaking borrowings. However, a lower budget deficit is a concern as it denotes less spending by the government. The RBI data shows that at 3.6 per cent of the GDP in 2021-22, the states’ budgeted deficit is 1.1 per cent below the revised estimate of 4.7 per cent of 2020-21. “Final deficits have always been lower than revised estimates, and often lower than budgeted estimates too,” says Neelkanth Mishra, co-head of Asia Pacific Strategy and India Equity Strategist for Credit Suisse. “Lower-than-budgeted deficits are mostly due to an inability to spend, made worse by lockdowns.”
In the absence of a state-wise break-up of the budget deficit in the RBI data, it is difficult to ascertain which states have slipped the most. Another way to gauge how little states have spent is through the cash balance held by the government. State governments cannot bank with the RBI, but they can buy zero coupon bonds issued by the Center using surplus cash. The Center parks this money with the RBI. Mishra says that data points to about Rs 2.7 lakh crore of surplus cash parked by the Center with the RBI at the end of 2020-21, indicating that the states’ deficit was close to 3 per cent of the GDP.
In the first half of the current financial year, states borrowed Rs 80,000 crore less than what was targeted and the cash balance rose to Rs 20,000 crore. “The deficit in 2021-22 could again be close to 3 per cent of GDP, and borrowings Rs 1 lakh crore lower than budgeted,” says Mishra.
Former Telangana chief secretary SK Joshi points to several factors behind the delays in implementation, and these vary from one project to another. “First, there’s an absence of dialogue between the Union and state government representatives after the expense has been budgeted. Second, the pace at which those in Delhi and in the states pursue things differs vastly, often depending on the individuals in charge. The varying costs and inevitable escalation, after the cost has been worked out at the planning level, and the inability of the states to provide their own share—whatever be the quantum—also contribute to the lag in projects and implementation of centrally sponsored schemes. ” Besides, there are state-specific issues depending on the nature of the project or scheme which are often not factored in during the planning stage.
Loopholes and lessons
A Mumbai-based economist, requesting anonymity, says state governments always give a higher revised budget estimate, only to fall short of the targets. This was true even in the pre-Covid years. He argues that governments cannot cite the pandemic as an excuse to not spend. “Governments need to learn to adapt to the situation just as private firms have, and ensure that no big disruptions take place. Governments usually prepare for disaster recovery. But the pandemic seems to have exposed their vulnerability. When it comes to proper spending of taxpayers’ money, they have been caught napping,” he says.
Others expect the government to catch up by the end of the financial year. Madan Sabnavis, chief economist, Bank of Baroda, says the shortfall in the Centre’s expenditure has been most evident in areas like consumer affairs, fertilizers and fuel, where subsidies are involved. For instance, Rs 98,000 crore was earmarked in 2021-22 for the government’s free food programme. “The food stocks may have already been supplied to FCI, but the accounting may be done at the end of the financial year. The same holds true for fertilizers. As long as the capex is not compromised, growth is not going to be impacted,” says Sabnavis.
While slippages on the expenditure front happened in the previous years too, the pandemic has underscored the need for efficient use of the government machinery to extend relief and push projects that create jobs on a large scale. Going by RBI data, that doesn’t seem to have happened in 2021-22. Governments, both at the Center and in the states, have some hard lessons to learn from the pandemic and must execute their plans more efficiently if expenditure targets are to be met and the intended benefits are to reach people.
(With Amarnath K. Menon)
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