Covid-19 hits Modi govt budget, Q1 expenses capped to save funds to fight the virus

The budget caps stand at either 15 or 20% of the full year’s allocations and won’t apply to ministries at the forefront of the Covid-19 battle, including health & food.

A deserted street in Paharganj, Delhi, during the nationwide Covid-19 lockdown | Photo: Suraj Singh Bisht | ThePrint

New Delhi: The Union Ministry of Finance Wednesday curbed the expenses of many ministries for the first quarter of 2020-21 as it looks to battle the fallout of Covid-19 and the 21-day lockdown on its revenues. The departments affected include defence and home affairs, and the caps restrict expenses to either 20 per cent or 15 per cent of the full year’s budget estimates. 

“Keeping in view the present situation arising out of Covid-19 and the consequential lockdown, it is expected that the cash position of the government may be stressed in Q1 of 2020-21,” the ministry said in an office memorandum, a copy of which has been accessed by ThePrint. 

“Considering this, it is essential to regulate the government expenditure…” it added, detailing the quarterly expenditure limits for various departments.

The restrictions do not apply to ministries and departments crucial to the government’s battle against Covid-19, including health and family welfare, pharmaceuticals, food and consumer affairs, rural development, civil aviation, railways, and textiles.

The expenses of the Ayush Ministry, which deals in alternative medicine, and the Supreme Court, Central Vigilance Commission, the President of India, and the Union Public Service Commission (UPSC) have been spared any curbs too.

Transfers to states that are leading India’s response in battling the coronavirus pandemic are also immune to the caps.

ThePrint approached the finance ministry spokesperson for a comment by email but they were yet to respond by the time of publishing.

Education, housing, sanitation affected too

According to the office memorandum issued by the budget division of the ministry’s Department of Economic Affairs, departments tackling higher education, skill development, housing, drinking water and sanitation, micro, small and medium industries, and labour will see sharp expenditure control. 

The finance ministry has mandated these departments to cap their first-quarter expenditure at 15 per cent of the full year’s allocation. The monthly cap for these departments is 5 per cent of the budgeted expenditure. 

Both capital and revenue expenditure incurred by the ministries of defence, home affairs, and road transport and highways, as well as police, has been capped at 20 per cent of full-year allocations for the April-June period. This will also be applicable to central fund transfers to union territories, including Delhi, Jammu & Kashmir, and Puducherry. 

Besides the quarterly limits, the finance ministry has also imposed monthly restrictions. The departments cannot spend more than 8 per cent of the budget estimates in April and 6 per cent each in May and June. 

A senior government official told ThePrint that this was an internal cash-management mechanism of the government and a lot of thought had gone into deciding the caps.

“If you look at the expenditure of ministries in the first quarter, which typically starts from May, the expenditure is anywhere between 15 per cent and 20 per cent,” the official said. 

“Moreover, work of infrastructure ministries or even social sector ministries has halted for now. So, less expenditure at this time would not be hitting the ministries hard at this point,” the official added. “The extra funds are likely to be channelised to health and crisis management at this point in time,” the official added. 

Typically, the finance ministry imposes expenditure controls in the last quarter of every financial year to check indiscriminate spending by government departments to exhaust their allocations. 

In the last week of March, the finance ministry had issued a circular to cut red tape and ease government procurement of essential supplies from both within and outside India. 

The special dispensation to ministries like health, pharmaceuticals, textiles, food affairs and civil aviation had allowed these departments to spend in keeping with their requirements vis-a-vis the pandemic.   

‘Caps will require some adjustments’

Asked about the caps, defence sources said they will require some adjustments with respect to payment liabilities to public sector undertakings (PSUs) in the sector. The payments to defence PSUs planned for this quarter may be reduced for the time being and adjusted in the next quarter, a source said. 

However, the source pointed to the “little increase in defence budgets… with funds just meeting committed liabilities” to rule out any immediate planning for big-ticket capital expenses. 

“But as far as defence pensions are concerned, only certain arrears can be adjusted and given out in the next quarters. Long-term pensions are unlikely to be affected,” a second source added.