The Tiff Over Centre's Spending

ON DECEMBER 9, Finance Minister Nirmala Sitharaman presented the first batch of supplementary demand for grants in Lok Sabha. She sought parliamentary approval for additional expenditure of ₹3.26 lakh crore, over and above the ₹39.5 lakh crore earmarked in Union Budget FY23. The minister hinted even this will not be sufficient and government will seek Parliament's approval for one more batch of supplementary grants before the end of the financial year. The additional cash outgo is 8.3% of budgeted expenditure for the year. Sitharaman justified the expenditure by pointing out recession in global economies, both developed and emerging, weakening global trade and geopolitical tensions.

Experts were expecting this. "It is on anticipated lines, mainly because of increased allocations for food and fertiliser subsidies," says Rajani Sinha, chief economist, CARE Ratings. "Net cash outgo under supplementary demand for grants, which is somewhat smaller than our expectations, is dominated by fertiliser subsidy, food subsidy, payments to oil marketing companies for domestic LPG operations and funds towards MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme). Additionally, capex has been augmented by around ₹31,000 crore, which should ensure that the government meets its annual target. With savings likely under other heads, we do not see the supplementary demand resulting in a meaningful breach of the fiscal deficit target of 6.4% of GDP," says Aditi Nayar, chief economist, ICRA.

In fact, mid-year tweaks in Centre's spending plan and multiple demand for grants after presentation of Budget has been a routine practice under present and past governments. There are well laid down Constitutional provisions and rules that instruct Central government what to do when it has to spend more than what was proposed in the Budget. This was done as it can be difficult to assess exact spending needs well before the start of the financial year during uncertain times. "When the Union Budget was presented, the full impact of the Ukraine-Russia tensions was not known. Also, the foodgrain supply scheme, Pradhan Mantri Garib Kalyan Anna Yojana, was only up to September. To be fair to the government, you can't have a handle on global economy and financial and money markets two months before the financial year starts. You have to make assumptions," says Devendra Kumar Pant, chief economist, India Ratings. "Due to evolving domestic and global macro and financial conditions, mid-year adjustments in expenditure allocations are required. Supplementary demand for grants takes care of this."

While almost everyone agrees on the need for supplementary grants, the quantum of additional funds sought and nature of the proposed expenditure are usually a matter of debate. For instance, A.M. Ariff, a Member of Parliament representing Alappuzha constituency, questioned the quantum of funds sought in the latest supplementary demand by pointing out that the Public Accounts Committee (PAC) of Parliament has more than once expressed concern over lack of foresight and bad planning on part of Budget controlling authorities of various ministries and departments. "The PAC reiterated the need for scrupulous scrutiny of Budget proposals, rigorous monitoring of expenditure and strict compliance with financial rules to eliminate the possibility of expenditure being under-spent and wrongful appropriation. But even after that, proper planning and effective monitoring mechanisms for a disciplined Budget system are lacking in our country," he says.

The government had sought 12.4% of the originally budgeted expenditure in demand for supplementary grants in FY22. This number was 19% in pandemic year FY21. In FY17 and FY18, it was 13.2% and 14.4%, respectively. The finance minister defended the latest demand by referring to UPA government's move in FY09 when, in response to the global financial crisis, it proposed two supplementary demand for grants accounting for 20% of Budget estimates for the year.

A retired bureaucrat says the issue is not about excess expenditure but Budget marksmanship. "You are supposed to prepare the Budget after carefully considering revenue and expenditure during the year. Your final expenditure is expected to be close to what was budgeted. The Constitution considers this seriously. That is why there is provision for a contingency fund for extraordinary situations. But what has happened, especially beginning 2021, is that revenue estimates have been very poor. Either they are undershooting, that is, the realisations are much less like in FY20, or much more than estimated, as was the case in FY22, and likely in FY23 too. On expenditure side, too, a lot of ad-hocism has come in. For instance, in FY21, when government decided midway through the year to clear Food Corporation of India's subsidy bills given in the form of loans, food subsidy outgo shot up from ₹1 lakh crore to ₹5 lakh crore. Such practices are uncalled for. The government could have done that clean-up in next financial year. But it perhaps wanted to show it was providing a very large Covid-19 stimulus. This happens when political objective takes precedence over constitutional budgetary marksmanship," he says.

Early this year, the PAC, headed by Congress MP Adhir Ranjan Chowdhury, had asked ministries and departments to give due seriousness to estimating budgetary requirements at Budget/supplementary demand stage and avoid repeated supplementary grant proposals. The committee also pointed out that the increase in the corpus of the Contingency Fund of India from ₹500 crore to ₹30,000 crore in FY22 was aimed at meeting immediate requirement of funds for uncertain situations.

Incidentally, National Institute of Financial Management (NIFM) had, in a report commissioned by finance ministry, looked into the excess expenditure incurred by various ministries and departments from FY01 to FY18 and made 12 recommendations for building an informed system of budgeting and expenditure control. The report also looked at how the issue of excess expenditure is looked at by parliaments of various developed countries like Australia, Canada, Ireland, New Zealand and U.K.. The PAC had wanted the finance ministry to look at NIFM’s recomme- ndations in the right spirit and make necessary arrangements in consultation with Comptroller and Auditor General of India and Controller General of Accounts. It also asked the Department of Economic Affairs of the finance ministry to appraise the PAC about specific measures undertaken in this regard.

The forthcoming Budget FY24 will indicate if PAC's recommendations have had an impact on the annual Budget making exercise or not.