Centre may relax expenditure norms for Q4 to speed up capital expenditure

The Centre may relax cash management guidelines for the last quarter (January–March) of FY25 to allow lagging departments and ministries to utilise their allocated capital expenditure (capex) for the financial year.

 

Currently, the guidelines stipulate ministries to not exceed 33 per cent of their Budget Estimates for the March quarter and 15 per cent of the last month of a financial year. Currently, the guidelines require ministries to limit their expenditures to no more than 33 per cent of their Budget estimates for the March quarter and 15 per cent for the last month of the financial year. 

“We may not insist on departments to comply with cash management guidelines during Q4. But we also do not want a bunch up in the last quarter of the financial year. We have already allowed departments to rollover their expenditure allocations from Q1 to Q2 and from Q2 to Q3, in a bid to ensure spending across the year, especially when it comes to capex,” a senior official said. 

However, the official maintained that critical ministries have so far exceeded 50 per cent of their capex targets. For instance, the Ministry of Road Transport and Highways had spent 52 per cent of its total budgeted capex for FY25 by September, while the Ministry of Railways had completed 54 per cent of its total capex in the same period. 

 

The Centre’s capex, through which it builds physical infrastructure, reached Rs 4.1 trillion or 37.3 per cent of the annual target in the first five months of FY25, against 49 per cent in the same period last year. 

The government will need to spend Rs 1.16 trillion per month in the second half of this financial year to meet the Rs 11.1 trillion capex target for FY25. 

The Asian Development Bank (ADB), in its biannual outlook released in September, flagged the government’s “failure” to meet its capex target for FY25 as a potential downside risk. 

The finance ministry had allowed ministries and departments to roll over their expenditure allocations from Q1 to Q2 and from Q2 to Q3 to ensure a consistent spending flow. 

Payback time Covid loans 

Anticipating enhanced gross borrowing in the next financial year due to the redemption of Covid-era loans, the finance ministry has taken steps, such as buybacks and switch auctions, to smoothen its fiscal management for FY26. 

The government has done a buyback of Rs 80,000 crore of dated securities and conducted switch auctions worth Rs 1.3 trillion. A switch auction is a process where the government exchanges shorter-duration bonds for longer-duration papers or to move from higher to lower interest rate securities. 

The net borrowing announced in the Budget for FY21 was Rs 5.36 trillion. However, post-pandemic, as government revenues were impacted, borrowings for that year went up to Rs 9.22 trillion. Part of this amount will become redeemable in FY26.