Finance ministry won’t approve any new govt schemes in FY21 amid expenditure squeeze

Schemes under the Covid economic package will be the only exceptions to a new order. A massive contraction in revenues and rise in expense has led to a crunch.

Representational image of Union Finance Ministry | ANI

New Delhi: The Ministry of Finance will not approve any new public funded schemes this year as India looks to enforce a major expenditure squeeze in 2020-21 in the face of acute cash flow problems.

The Covid-19 outbreak and the subsequent increase in expenditure accompanied by a sharp contraction in tax revenues due to the nationwide lockdown have led to a massive funds crunch for the Narendra Modi government forcing it to ramp up market borrowings.

In an order dated 4 June, the department of expenditure in the finance ministry informed all ministries that it won’t give in-principle approvals for any new scheme or sub scheme in the current financial year, except for those that were part of the Atmanirbhar economic package, including the Pradhan Mantri Garib Kalyan Yojana.

All government ministries and departments require in-principle approval from the expenditure department for new schemes or sub schemes.

“It may be appreciated that in the wake of the Covid-19 pandemic, there is an unprecedented demand on public financial resources, and a need to use resources prudently in accordance with emerging and changing priorities,” said the order.

The department also informed ministries that initiation of new schemes for 2020-21 that have already been approved will be suspended until 31 March 2021. All existing schemes can continue till 31 March 2021 without a change in their scope, nature, coverage and without creation of additional posts, the order said. The continuation of these schemes thereafter will be dependent on an evaluation and outcome review.

The schemes will be approved for a period of another five years subject to the recommendations of the 15th Finance Commission and the resource position of the public exchequer, the order added.

Funds crunch

These are not the first set of expenditure curbs placed by the finance ministry in the last few months. It had earlier set conditions on spending by different ministries in the April-June quarter as a percentage of their budgeted expenditures for the full year.

More curbs will be placed in the July-September quarter, ThePrint had reported.

The moves come at a time when revenues are expected to contract by more than Rs 4 lakh crore in 2020-21. Tax revenues are expected to contract sharply with the economy headed towards a 5-12 per cent contraction. The disinvestment target of Rs 2.1 lakh crore is also unlikely to be achieved, exerting pressure on the country’s fiscal deficit.

The government has already announced a 50 per cent increase in its market borrowings this year – it will borrow an additional Rs 4.2 lakh crore in 2020-21 taking the total borrowings to Rs 12 lakh crore as against the initially budgeted Rs 7.8 lakh crore.