This is the highest capex ever over a 2-year period: T.V. Somanathan


Expenditure Secretary T.V. Somanathan said the government has been very careful and realistic in its expenditure and receipts projections for 2021-22, and that its push for capital expenditure is the largest ever over a two-year period. Excerpts:

You have called it an expansionary budget, but overall spending is just about ₹33,000 crore in 2021-22 over this year’s revised estimates (RE). Also, what’s been the approach used for overall estimates?

Yes, but the RE is substantially higher than the Budget Estimate (BE), which is contrary to expectations of most analysts and economists. So spending expanded this year and the expansion has been sustained into next year. As recently as two weeks ago, a lot of analysts were saying it will be about rs. 30-31 lakh crore. It might have looked more expansionary if we spent ₹30 lakh crore this year and then spent ₹34 lakh crore… but actually, spending around ₹34 lakh crore in both years is more expansionary.

Incremental expenditure isn’t high, I agree, but the composition changes very substantially. This year’s spending had a big weight of welfare schemes and subsidies, and next year, many of those one-time expenditures disappear and get replaced by capital expenditure. The capital expenditure is 34.5% above 2020-21’s BE and 26.5% over the RE. With six months of closure and restrictions, capital expenditure has been difficult to sustain, yet the capex is above BE, which is a significant achievement. Most people didn’t expect us to reach anywhere near the capex budget. But we are likely to reach ₹4.39 lakh crore. And this year’s BE was 21% higher than previous year, so over a two-year period, this is the highest increase in capex ever.

Estimating for the central government of a democracy of such diversity and complexity of India is an art, not a science, so we can never get the estimates exactly right. We can’t predict every possible contingency that will arise during the year, nor can we very accurately predict what the revenue collections will be, nor can we even predict what the GDP will be. So the only thing that I will say with all sincerity is that this time, we have been extremely careful to try and estimate all receipts — not just revenue — and expenditure as realistically as we can, given the information and the knowledge that we have. We may go wrong, our knowledge may be less, or our information may be wrong. But there is no deliberate under- or over-estimation. If anything, there may be slight underestimation of revenue and slight over-estimation of expenditure on the conservative side, because we don’t want to show a rosier picture than reality. We want to be very careful, we know that we are in a difficult situation, we have just gone through a very difficult situation.

We have tried to be realistic and made a sincere effort. We could still go wrong, but it is not for any lack of due diligence. I don’t think we have deliberately padded any number in either direction.

There are concerns the ₹73,000 crore allocation for the MGNREGS in 2021-22 may not suffice to meet the rural job distress.

In MGNREGA, next year’s allocation is slightly higher than this year’s initial provision, but much lower than this year’s revised estimate. The reason for that is we have made a Budget estimate based on normal offtake from April. One can say that it would not have normalised in April, it’s anyone’s guess as of now. There are signs that a lot of normalisation of activity is going on. I have no certainty what the offtake will be next year. What we have provided is what is required in a normal year like 2019-20. If it proves inadequate, we will supplement it during the year. But 2020-21 is not a guide to 2021-22, because that was a very special elevated situation due to the lockdown and the out-migration to rural areas, which I think is not a comparable or reasonable point of estimation for ‘21-22.

 

Of course, minimum wages have increased since 2019-20, so we made a small increase. We are committed to providing what is required based on the uptake during the year. But it’s not a scheme where, if you provide more, more is spent, and if you provide less, less is spent. The problem would arise if there is excess demand and we don’t provide it. But as of now, it is premature to say what the level of demand will be. And we have made an assumption of a normal year. We have provided ₹1,11,500 crore this year and the demand is tapering off. It’s a very substantial number that is approximately what the Rural Development Ministry asked for.

On defence spending, the headline numbers don’t show a substantive increase.

A very erudite economist on a channel was asking how can defence pensions and salary go down and claimed this is obviously a false estimation. In government, we have periodic payments of Pay Commission arrears because it takes a long time for some disputes to get settled and some category of person who didn’t get it, gets it. So there were substantial pension and salary arrears paid in 2019-20 and, to a much lesser extent, in 20-21. So when you remove the arrears component, the salary and pension bill does become less in 21-22. It is not a falsification of the salary.

There are three demands – defence services revenue, which is primarily salaries and things like fuel and revenue expenditure of the military. It’s very important. For example, this year, there was some extra requirement for different services revenue to move troops to Ladakh. That is revenue, not capital expenditure, but is necessary. The part which needs more money is primarily capital, there could be some revenue spending which may arise if there’s a big mobilisation or a war-like scenario and we will provide it. That’s why we have an RE system. It’s not that this is set in stone. But we don’t begin the year with an estimation of a crisis. The year always begins with a normal assumption. That’s the normal way we do things. If it turns out to require more, we will give more, but we have budgeted an almost 19% increase in capital spending from about ₹113,000 crore to ₹135,000 crore. That is fairly substantial.

I think in a year like this with so many competing priorities, and so many scarcities of resources, that’s reasonable. It is never enough. I mean, in government, nothing is ever enough. We have so many priorities, all are important. Health is important. Defence is important. Capital expenditure is important, education is important, social welfare is important. But we have to make hard choices. So, we feel we have balanced it reasonably.

States may have some hard feelings as their share of the Budget rupee seems to have come down.

That’s partly because this year, the share of borrowing in the rupee coming in is much higher. In fact, this was mentioned by Finance Ministers in their interaction with the Union Finance Minister in their pre-Budget interaction. The point they were making is we estimate our revenue receipts based on our share of Central revenue receipts. You give us a budget estimate in February, we have planned 1/12th of that to come every month, we are getting much less. This is the complaint.

In some less-informed fora, people have said, look, they’re not giving 41% but less. Let me set the record straight. What is expected to be given, both under the letter and spirit of the Finance Commission is 41% of what is collected. As a practical matter, we provide an estimate in the beginning. Last year, what happened very unusually is that we had provided the Budget in February before the lockdown. We had a particular revenue estimate. Obviously, every State took 41% times their horizontal share of that times the central figure and put it in their Budget as expected revenue receipts. Unfortunately, the first six months, revenue didn’t materialise.

The first three months, we continued to release 41% of the monthly Budget estimate because we deliberately didn’t want them to feel the shock at that time when no taxes were being collected. We then started tapering it back to the actual collection in the second quarter. And from the third quarter, it’s being released according to actual collection. So the problem the States are facing is a genuine one. They are getting less but that is because aggregate collections are less. It is not any short-changing by the Centre, but the impact of falling revenues. It is admittedly a problem for them, it is also a problem for us. I think there was also a little bit of a problem in the year before that, because the revenue estimates turned out to be too optimistic. So, I think two years in a row, they are facing some problem on this side. But in the coming year, we’ve kept revenue estimates reasonable and hope that the States will not face this issue and broadly, they will get revenues in line with the central Budget estimates at the rate of 41%.

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