Cautious Push: Finance secretary TV Somanathan tempers stimulus expectations

The Centre’s expenditure commitments have exceeded the budgeted level by about Rs 2 lakh crore only half way through the fiscal, owing to the announcement of a raft of steps, including free grains to the poor, elevated fertiliser subsidy and clearance of dues to exporters, finance secretary TV Somanathan has said.

The Centre had budgeted its FY22 expenditure at Rs 34.83 lakh crore.

However, tax collections – both direct and indirect – will also cross the FY22 budgetary goals (Rs 15.45 lakh crore), he said at the Idea Exchange programme of the Indian Express Group. The secretary conceded that the government’s recent package for the crisis-ridden telecom sector could pressure its non-tax receipts this fiscal.

Still, some analysts peg the extra revenue mop-up at Rs 2 lakh crore in FY22. This means the Centre’s additional spending commitments can be easily absorbed by the extra revenue flow, without endangering its FY22 fiscal deficit target of 6.8% of GDP. If anything, its curbs on “wasteful expenditure” across dozens of departments in the first half of this fiscal could generate savings of about Rs 1.15 lakh crore, according to an FE estimate

There is a strong opinion among sections of the economists’ fraternity and independent analysts that the government could allow the fiscal deficit to exceed the budgeted level by a significant margin to find resources for giving a much-needed boost to consumption spending, which is at a low ebb.

The secretary, however, sought to temper expectations of large demand-side stimulus. The revival of economic activity itself will stir demand, he said. “Directly stimulating demand is subject to fiscal constraints. The problem with stimulus in a vibrant democracy is that it is easier to start a spending programme than to stop it. It may lead to a situation where the government will spend even when there is no need to spend.”

Amid concerns about a slowdown in the growth of capital spending, Somanathan, who holds the expenditure portfolio, made it clear that the finance ministry hasn’t imposed any curb on capex. It’s up to the individual departments to utilise the budgetary space available to them for capex, he stressed.

The Centre’s capex rose only 15% in the April-July period from a year before, against the full-year target of 30% (from the actuals of FY21). Since the presentation of the FY22 Budget – in which the government pushed for capital spending, with high multiplier effect, to reverse a Covid-induced growth slump – such expenditure dropped in March, May and July from a year earlier.

“We wanted to reach that (budgeted target of capex growth) but it’s not up that much. Any non-incurring of capital expenditure is not because of any curb…Capital expenditure may require land acquisition, construction, etc. We are reviewing the progress…” Somanathan said.

For the budgeted goal of Rs 5.54 lakh crore to be realised, the Centre’s capex needs to soar by 36% on year between August 2021 and March 2022.

The secretary exuded confidence that the Air India sell-off plan will be pulled off. “The fact that we have received two bids for Air India, is a good sign.” The government’s minority stake sale in LIC is “at an advanced stage of preparation”.

Despite elevated tax collections, the government won’t resort to fiscal profligacy. “There are (increases in) expenditure commitments which one shouldn’t lose sight of when they say revenues have gone up,” he said.

As such, the government has already chosen the path of “calibrated fiscal expansion” to counter the damage caused to the economy by the pandemic. That’s why the budgeted fiscal deficit is at an elevated level of 6.8% for FY22, and not 3%, he said.

Nevertheless, the secretary asserted that the government will continue to prioritise expenditure on the poor and the vulnerable, and on those areas of the economy that need protecting. “NREGA, food & fertiliser subsidy and capex will be fully funded. We don’t want to accumulate arrears, including in export benefits. We are trying to protect those who need protecting, while also protecting macro-economic stability,” he said.