Centre seeks Parliament nod for additional net cash expenditure of up to Rs 1.67 lakh crore

Finance Minister Nirmala Sitharaman (File image: Reuters)

In the wake of the coronavirus pandemic-induced recession, the finance ministry has sought Parliament's approval for gross additional expenditure of Rs 2.36 lakh crore, of which the the net cash outgo would be to the tune of Rs 1.67 lakh crore.

The gross additional expenditure, matched by savings of the ministries and departments by enhanced receipts/recoveries, aggregates to Rs 68,868 crore.

"The large additional net cash outgo of Rs. 1.67 lakh crore in the first supplementary demand for grants is partly comprised of new items announced under the fiscal support plan, stepped up health expenditure, as well as some items that were under-budgeted earlier, such as the revenue deficit grants in relation to the Fifteenth Finance Commission's recommendations," Aditi Nayar, principal economist, ICRA, said.

Under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the government sought Rs 72,000 crore, of which Rs 32,000 crore would be for the creation of capital assets and Rs 40,000 crore would be for transfer of funds to the National Employment Guarantee Fund.

For meeting expenditure towards recapitalisation of public sector banks through government securities, the government has sought Rs 20,000 crore.

"Our baseline expectation is now that the Government of India's fiscal deficit will widen to at least Rs 14 lakh crore, or 7.4 percent of gross domestic product (GDP), in FY21," Nayar said.

Though faced with revenue shortfall due to the nationwide lockdown to control the spread of Covid-19, the government has time and again reiterated that there would be no compromise on capital expenditure.

The GDP data for the April-June quarter showed that the Indian economy contracted 23.9 percent year-on-year due to the lockdowns imposed in March.

To tide over the economic fallout of the COVID-19 pandemic and subsequent lockdowns, the government in May announced a stimulus package worth nearly Rs 21 lakh crore. Even before the pandemic struck, the Indian economy was experiencing a slowdown as it grew at 4.2 percent in FY20.

With the economy now officially entering contraction, the government's focus would now be to revive growth. Experts believe that greater capital expenditure has a higher multiplier effect.

The government would have to undertake higher public investments in infrastructure, which would allow global supply chains to invest more. Announcement of new projects, increased construction activity, timely payment, and initiation of fresh projects are some of the ways in which demand could be generated in the economy.