Centre's expenditure budget for FY22-23 likely to remain flat

The fiscal deficit of the Union Budget for FY23 could stay around 6.8 per cent, the same as expected for FY22

There will be no significant rise in the expenditure budget of the government for FY23 from the levels of FY22. Also the worrying note here is that, along with the Centre, states too have slipped up on their capital expenditure so far. The implication is the target for capex in FY23 could end up being set on a lower base. 

As the finance ministry gets down to firm up the budget spending estimates for the Budget to be presented to Parliament by finance minister Nirmala Sitharaman, the consensus is to push additional expenditure only in a few sectors, like health. But those shall be revenue expenditures. 

At the same time, the finance ministry is, however, keen to bring some of the humongous debt of the National Highways Authority of India (NHAI), currently over Rs 3 trillion, into reckoning so that it shows up as explicit government liabilities as has been done for Food Corporation of India (FCI). “Overall, however, there will be no upside surprises in the expenditure numbers,” said a top government official. 

Consequently, the fiscal deficit of the central government budget for FY23 could stay around 6.8 per cent, the same as expected for FY22. Due to the impact of Covid on government finance, for FY22, the finance ministry had departed from the practice of announcing a medium-term fiscal path. It could announce the same this time. Also, the scare of Omicron will not disturb these numbers as it is too early to take a call on the impact. 

For FY22, the final spending num­bers are unlikely to move from the estimated Rs 34.8 trillion. The conserva­tive estimates for overall government spend are a follow through of the long conversations between the finance ministry and the line ministries, for their revised budgets for FY22. 

Just before the Budget for next year is presented in Parliament, the finance ministry holds these series of meetings with every department in the central government. This is to measure how much of the allotted money for the current fiscal year would be used up. 

These “revised expenditure” meetings give a handle to the top decision makers in the government to ensure that the expenditure momentum does not flag and any surplus is not left untracked.  

The revised expenditure meetings for FY22 show that quite a few of the key spenders will not be able to spend the money allotted to them in FY22. Data from the controller general of accounts, for the first half of the year shows that the total expenditure for all ministries is at 46.7 per cent of the budget estimates. It was almost 49 per cent at the same time last year. More significantly, in the last normal year before Covid (FY20), the spend in the first half was 53.4 per cent.  There are several reasons for the muted spending, one of them being the washout in the first quarter of the year due to the impact of the second wave. 

A slip up is also visible in capital expenditure for which the finance minister had set aside a record Rs 5.54 trillion, for FY22. This is a 34.5 per cent year-on-year (YoY) rise. The worry for the Centre is that the slack in capital expenditure has not been made up by the state governments. Only seven states have achieved the target to spend at least 45 per cent of their capital spend after the first half. The targets are set in consultation with the Union finance ministry. This is because most of the states are running revenue deficits and are reluctant to spend aggressively. 

The government had to also include Rs 53,344.22 crore of additional expenditure to finance the extension of the food subsidy scheme countrywide. Last week, the government decided to extend the scheme to offer food grains of 5 kg per person per month free of cost till March 2022. This will soak up the healthy growth in addtional revenue receipts. These receipts are already 60.4 per cent of the budget estimates for the first half of the year, mostly because tax revenues are expected to close out at Rs 2.5 trillion more than budgeted in FY22. But poor receipts from disinvestment (budget estimate Rs 1.75 trillion) will neutralise a lot of that.