Centre not cutting flagship schemes but won't take over states' burden

Official says some savings are expected as the Centre will make cuts wherever there is low-priority expenditure

Even as state governments cut down on their development expenditure citing lack of revenues, the Centre will not compromise on its share of expenditure for any of the flagship schemes, a top government official has told Business Standard. 

The Union government, however, will also not take over the states' share of centrally-sponsored schemes in case they can't fulfil their expenditure commitments, the official said. 

This comes even as the Finance Ministry has told central departments that they should be careful in releasing funds and should first check if the states have the capacity to spend the money already released, before allocating further sums. 

"We have no intention of cutting flagship schemes. There will be no cut on the outlay on flagship schemes. The states have to make their own decisions. In centrally sponsored schemes they also have to share the burden of expenditure. If they don't spend, then that portion will remain unfunded. We are not making any budget cuts on our end," the official said.
 

Earlier this month, Maharashtra, which has been the worst-hit by the Covid-19 pandemic, slashed expenditure for its development schemes by nearly 70 per cent and froze all new capital expenditure. Officials from other states admit that their coffers are running dry and development expenditure on their own flagship schemes could take a hit. 

In centrally-sponsored schemes, both the Centre and states have financial participation. A stipulated part of the funding is provided by the states in terms of percentage contribution. The ratio of state participation may vary from 50:50, 60:40, 70:30, or 90:10, depending on the scheme. The Centre transfers money to the states that are charged with implementing the scheme. This contrasts with central sector schemes, which are completely funded and implemented by New Delhi. PM-KISAN is a central sector scheme. 

 

Most of the major flagship programmes of the Centre are centrally-sponsored and hence are shared with states. “The Centre will not be funding the states' share of the centrally sponsored schemes. We will not be taking over the responsibility of the states. We don't do it in good years, we can't do it in a bad year," said the official. 

The official said some savings were expected since the Centre will be making cuts wherever there is low priority expenditure, and in non-scheme expenditure. 

Expenditure Secretary TV Somanthan has written to various ministries asking them to exercise control over the expenditure while releasing money to states for central schemes, owing to dwindling tax and non-tax revenues as the economic activity remains muted because of the lockdown. 

In April, the expenditure department had put restrictions in place for various ministries to limit their spending in the April-June quarter. In a normal year, ministries and departments spend 25 per cent of their full year allocation in the first quarter. For a number of ministries, that was reduced to 20 per cent or 15 per cent. 

"It is not as if the Centre is completely unaffected on revenues. Every rupee fall in state goods and service tax is a rupee fall in central GST also. Although the revenue of the Centre has collapsed, we have assumed the 100 per cent of budgeted revenue for April and released the tax devolution to states, although we know we will not be anywhere close to 100 per cent," the official said. 

In light of falling revenues, the Centre had on Friday said its borrowing programme for the year would increase by nearly 54 per cent to Rs 12 trillion, from Rs 7.8 trillion estimated earlier.

For April, the Finance Ministry had sanctioned the release of Rs 46,038.7 crore to states as devolution. This came after the release Rs 17,287.08 crore to states in revenue deficit grants and state disaster response mitigation funds for 2020-21.

These amounts are still short of what the states have been asking, as the resources are being crunched due to the extended lockdown. Several chief ministers and finance ministers have written to the Centre seeking funds to deal with the pandemic as well as pending amounts, whether under devolution, grants, share of central schemes or GST compensation.

Maharashtra had sought a special package worth Rs 25,000 crore from the Centre and asked it to release pending dues worth Rs 16,654 crore under various heads by March 31, to fight the economic crisis stemming from the Covid-19 outbreak. Tamil Nadu has sought a special assistance of Rs 4,000 crore and a slew of other financial support. West Bengal has also asked for a package of Rs 25,00 crore and clearance of dues worth Rs 36,000 crore. Additionally, all states have sought relaxation of their borrowing and fiscal limits.