Wednesday, 23 November, 2022
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Modi govt has tried to stimulate economy without creating future crisis: Expenditure Secy

Speaking to ThePrint, Expenditure Secretary T.V. Somanathan says borrowings through extra-budgetary resources have increased but Modi govt has been transparent in disclosing it.

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New Delhi: The Narendra Modi government has tried to provide an economic stimulus in the Union Budget 2020-21 but without creating a future crisis, Expenditure Secretary T.V. Somanathan said.

In an interview to ThePrint, Somanathan defended the government’s move to rely more on extra-budgetary resources to fund some of its expenditure, pointing out that this will prevent a huge load on the bond markets which could crowd out private investments.

On Saturday, Finance Minister Nirmala Sitharaman revised fiscal deficit targets for 2019-20 and 2020-11 upwards by 0.5 percentage points each as slowing revenues adversely affected the government’s ability to adhere to the fiscal deficit target of 3.3 per cent and 3 per cent, respectively.

The government has been criticised for hiding its fiscal deficit numbers by making agencies like the Food Corporation of India borrow from the National Small Savings Fund instead of allocating the entire food subsidy requirement in the budget.

Somanathan said the government has been transparent in accounting for the extra-budgetary resources.

“Yes, there are extra budgetary resources but they are transparent and not hidden,” he said. “We have taken recourse to it as a counter cyclical measure now when we have a cyclical slowdown. We want to push expenditure but push it in a away so that there is not a huge load on the bond market.”

The government has estimated that the extra budgetary resources will amount to 0.7 per cent of GDP in 2019-20 and 0.8 per cent of GDP in 2020-21.

“We don’t want to repeat a situation where in the middle of a slowdown you jam the accelerator by putting lots of resources and push the deficit to a high level. This creates a crisis that forces you to screech to a halt later — bond yields go up, foreign funds pull out and rupee falls,” he said.

“We have tried to apply a stimulus but within the limits that will not generate a crisis down the road,” added Somanathan.

Also read: Small savings fund, off-budget borrowings rescue Modi govt again on fiscal deficit

‘Not a contraction’

The expenditure secretary said the Modi government had little option but to lower the expenditure from the budgeted targets for 2019-20.

“The expenditure cut in the current fiscal from the initial budgeted targets was inevitable because revenues have been much lower than budgeted,” Somanathan said, adding the revised lower expenditure targets are still higher than the actual expenditure in 2018-19.

The government has lowered the expenditure for 2019-20 to Rs 26.98 lakh crore from Rs 27.86 lakh crore that was initially budgeted. The actual expenditure in 2018-19 was Rs 23.1 lakh crore. In 2020-21, it is projected at Rs 30.4 lakh crore.

“In terms of the impact of the economy, it is not a contraction,” he said.

For 2020-21, Somanathan is positive about finding resources to fund the expenditure.

“Realistic estimates have been made on the revenue side. The nominal GDP growth is projected at 10 per cent, which is achievable. The tax numbers are well grounded. Disinvestment is a challenge but a lot of work put in this year will fructify next year,” he said.

The government has budgeted tax revenues to grow at 12 per cent in 2020-21 over the revised estimates of 2019-20. Disinvestment receipts have been budgeted at an ambitious Rs 2.1 lakh crore in 2020-21 as against a revised Rs 65,000 crore in 2019-20.

Also read: Budget 2020: 15th Finance Commission keeps states’ share virtually unchanged for FY21


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