More than 50% of the Centre's annual spending is unproductive, shows data

Will Budget 2022-23 be transformative enough to give developmental spending a majority share in the expenditure mix?

The Union Budget for 2022-23, which will showcase the Central government's revenue estimates and spending priorities for the upcoming financial year, will be presented soon. Though all Budgets are unique in the way that they try to address the biggest challenges of that particular year, some characteristics of the Union Budget are timeless, or in other words, have not really changed over the years.

To see how productive has central government expenditure been, we divide the Budgetary expenditure into five buckets, as follows.

(1) Establishment expenditure of the Centre, which includes salaries, pensions and administrative expenses

(2) Interest payments, which is essentially the interest paid on loans and bonds of current and previous years which have not matured yet

(3) Subsidies, which are dole-outs given to the weaker sections of the economy for their welfare

(4) Capital expenditure, or capex, which is the most productive of all expenditures, mostly going towards creation of assets like roads

(5) Developmental revenue expenditure, which includes spending on health, education, rural employment, housing for the poor, agriculture, and so on.

Among these, only (4) and (5) represent the spending which reflects the development priorities of the government.

And the share of these in the spending pie has largely remained less than 50 per cent for the six years under the current government. The situation was similar under previous governments too.

The share of capex has nearly remained stagnant and low, below 15 per cent of total annual expenditure, for many years. While the share of developmental revenue expenditure rose till 2019-20, it has steadied in the last few years.

Coinciding with Covid-19, the central government decided to clear all its dues towards subsidy arrears. This resulted in a rise in the share of subsidy spending, and this is set to continue for the current financial year too, as the Centre has increased both food and fertiliser subsidy outgo in its mid-year supplementary additions to expenditure.

For the current financial year, the chart shows data till November (first eight months of FY22). Establishment expenses for this part are assumed to be 75 per cent of annual spending on a pro-rata basis. It clearly shows that the share of developmental spending and capex has declined in the first two-thirds of FY22.

The Centre has borrowed less than its planned borrowing for 2021-22, and while revenues have been buoyant this year, expenditure has been on a slow track. Less borrowing would mean a trimmed interest outgo for upcoming years. Further, it is likely that subsidies will not take disproportionate space in expenditure in coming years as most pending accounts have been cleared. Discontinuation of LPG subsidy will further improve the quality of overall  expenditure by the central government.