INTERVIEW | Government can't sustain handouts indefinitely, says Expenditure Secretary TV Somanathan

Expenditure Secretary TV Somanathan.

The central government has saved around Rs 1.7 lakh crore in FY21 due to expenditure rationalisation measures put in place since the COVID-19 pandemic-induced lockdown, Expenditure Secretary TV Somanathan told Moneycontrol in an exclusive interview a day after the presentation of the Union Budget 2021-22.

“Without those measures our revised expenditure would have been Rs 36 lakh crore instead of Rs 34 lakh crore,” Somanthan said.

Speaking on a number of issues, he also said the Centre’s allocation for the COVID-19 vaccine programme would be enough to vaccinate 50 crore people. Somanathan said it was a conscious decision by the government to invest in infrastructure projects which will create jobs rather than provide further handouts, as the former will have long-term benefits. Excerpts:

Q: Finance Minister Nirmala Sitharaman has allocated Rs 35,000 crore for the COVID-19 vaccination programme in the coming year. Of course this is only the central government. States and private sector will also allocate their own sums. But is there an estimate of how many people you can inoculate with the amount allocated?

A: We do not have a specific number in mind. The costing, the cost sharing, pricing, these are as of now open questions, which will be decided between NITI Aayog, the Ministry of Health and others who are involved. From the Finance Ministry's point of view, there is an approximate knowledge of what the unit costs are. What I can say, if you take the cost of vaccinating one person, I would estimate it at roughly Rs 700 - assuming two doses per person and assuming incidentals such as syringe, transportation, cold storage. Which means the amount of money provided, if it was exclusively provided by the Budget, is sufficient to inoculate about 50 crore people. As the minister said February, this is not necessarily the final figure. If required, there will be more provided. This does not necessarily mean the final figure.

Q: What would you say to the criticism that it is better to put money in hands of the people rather than spending on infrastructure. How many jobs does the government expect to create through infrastructure?

A: I think putting money into labour intensive infrastructure projects is a better solution than putting money in the hands of people, at this stage of economic recovery. That will lead to durable employment rather than handouts. The government cannot sustain handouts indefinitely into the future. And there are hard choices to be made. More handouts mean less for capital expenditure.

I don’t think there is a specific target in mind. But we know there is a scope for large-scale job creation due to these high multiplier infrastructure projects. The sectors that are being pushed are labour intensive. There is scope for millions of jobs being created over the medium to long term.

It does seem like a lot of the additional expenditure in FY21 is to clear older arrears. Also, you had expenditure saving measures in place after the nationwide lockdown. How much have you saved?

There is one aspect which is increase in outlay due to the pandemic. Many of you have correctly calculated it at 2 percent of GDP, around Rs 4 lakh crore. Fertiliser subsidy increase was to clear old dues. A lot of it is clearance of dues. That is not being concealed. Then there are capital expenditure budget increases. All these arrears amount to around Rs 2 lakh crore. So that totals to Rs 6 lakh crore.

Yet you see, our revised expenditure for FY21 is around Rs 4 lakh crore more. That is because, through the expenditure rationalisation measures, we have saved around Rs 1.7 lakh crore. Without those measures, in effect from the April-June quarter itself, our revised expenditure would have been Rs 36 lakh crore instead of Rs 34 lakh crore.

Q: Apart from bank recapitalisation, all your extra budgetary resources are now above-the-line, including the massive yearly small saving loans to Food Corporation of India. How much burden does it add, making FCI allocations as part of the Budget?

A: The impact for next year due to getting FCI above the line is Rs 1.25 lakh crore. Current year the additional impact is about Rs 3 lakh crore. Out of that Rs 1.3 lakh crore is the Gareeb Kalyan Yojana impact.

Q: How realistic and achievable are your FY22 fiscal deficit, revenue and expenditure targets?

We think we are very realistic. We will stay within the fiscal deficit target of 6.8 percent of GDP in FY22. One can never estimate these completely accurately, either on the revenue or expenditure side. But in both the cases, the attempt has been to make the best possible estimate with the available data, with a slight bias towards conservatism in the case of revenue.

Q: One of the big announcements was the agriculture cess. What will it be utilised for?

A: It will be utilised for the agriculture infrastructure development fund, which was created under the Aatmanirbhar Bharat Package. The proceeds will be used for things like food processing, post-harvest processing. These are the areas where we hope to see farmer income going up without increasing agriculture produce by reducing post-harvest losses and middle-man margins. It is to promote investment in forward linkages to agriculture.

Q: While the government says this was a farmer-friendly Budget, the budget estimate of PM Kisan for FY22 is lower than the current year.

A: It is an asbolute fact that when we make estimates at an all-India basis, we assume participation from every state government. However, if one large agricultural state does not participate in the PM Kisan, the estimates automatically will come down. So next year’s estimates are based on requirements. This year’s estimates were made on the assumption that all states will participate. If that state comes in, we will provide the money.