Exclusive | Additional procurement may hike centre's vaccination budget to Rs 50,000 crore

'Already, multiple vaccination camps have been organised at the sites for the workers, and more are expected to follow,' the DMRC said in a statement.

With the Narendra Modi government planning to underwrite 75% of India's Covid-19 vaccine procurement, the Centre’s budget for the immunisation programme in 2021-22 could increase to around Rs 50,000 crore from the budget estimate of Rs 35,000 crore, Moneycontrol has learnt.

Additionally, the extra cost of extending free foodgrain to the poor until Diwali in November, also announced by the Prime Minister on 7 June, could be as much as Rs 1.10-1.30 lakh crore, a top government official said on condition of anonymity.  However, its impact on the food subsidy budget will not be more than Rs 80,000 crore because the balance has already been used to pay arrears under the head.

People familiar with the situation said the impact of the additional outlays on the Centre’s fiscal deficit will be gauged later in the year, but added that policymakers had been encouraged by goods and service tax  (GST) collections so far in the financial year that started in April, and by the fact that the Reserve Bank of India (RBI) surplus to the government was much higher than budgeted.

“Depending on the mix and pricing of the new set of vaccines, we would say the Rs 35,000 crore outlay could go up to something like Rs 50,000 crore,” the official cited in the first instance told Moneycontrol on condition of anonymity.

On June 7, Prime Minister Modi said in an address to the nation that the central government would procure 75% of India's Covid-19 vaccine requirements and ensure supplies to all the states, bringing under the Centre's ambit the responsibility of immunizing people in the 18-to-44-year age group.

Private vaccination centres will be allowed to procure the remaining 25% of requirements under the rules that take effect on June 21. This means that from that date, the Centre will distribute doses to the states to inoculate those in the 18-44 age group, instead of the states procuring them directly from vaccine makers.

As Moneycontrol reported earlier, the Finance Ministry will seek Parliament's approval for the additional amounts required for vaccination after exhausting most of the Rs 35,000 crore budget. The same process of approval, through supplementary demands. is to be applied for the additional spending on free foodgrain as well.

Extra spending on free foodgrain

Modi also announced that the government will extend the PM Garib Kalyan Anna Yojana (PMGKAY) until Diwali, undertaking to provide free grains until the festival in November to 800 million people.. The third phase of PMGKAY, which was initially meant for May and June, has been extended in the backdrop of the second wave of the pandemic that has hurt millions of poor families.

Under PMGKAY, the Centre distributes 5 kg of wheat or rice per person per month free of cost to beneficiaries of the National Food Security Act (NFSA), over and above their usual monthly entitlement.

“The total cost of the phase 3 of the scheme, from May to November, will be around Rs 1.10-1.30 lakh crore. However, since some of the arrears for May and June have already been cleared, the additional budgetary impact could be around Rs 80,000 crore,” said the official cited above.

The food subsidy budget for 2021-22 is around Rs 2.43 lakh crore, out of which Rs 1.8 lakh crore is the outlay for the public distribution system (PDS).

“As anticipated, free foodgrain provision has been extended by the government, which will help to buffer demand at the bottom of the pyramid amidst an uncertain economic outlook,” said Aditi Nayar, chief economist at the rating company ICRA Ltd.

Fiscal impact yet to be determined

In simple terms, the extra cost arising from the PM’s 7 June announcements is Rs 95,000 crore. The extent of the impact on the Centre's finances will, however, depend on a lot of other factors.

The budgeted estimate of fiscal deficit for 2020-21 is Rs 15.07 lakh crore, or 6.8% of the nominal gross domestic product. The fiscal deficit is a measure of the difference between the sovereign’s expenditure and revenue when the former is higher.

“It is too early in the year to assess the fiscal impact of these additional outlays. That is something we will be able to do only towards the end of the fiscal year. We are encouraged by the goods and service tax trends, and the RBI surplus comes as a boost," said the official quoted above.

GST collections for May came in at Rs 1.02 lakh crore, the eighth consecutive month that the indirect revenue had stayed above Rs 1 lakh crore. This was in spite of a perceptible economic slowdown last month in the backdrop of rising Covid-19 cases and regional lockdowns. April's GST collection was a record Rs 1.41 lakh crore, the highest monthly collection since the introduction of the nationwide tax in July 2017.

The Reserve Bank of India announced last month that it will transfer Rs 99,122 crore as a surplus to the government. According to the 2021-22 budget, the estimates for revenue from dividends by the RBI and state-owned banks and financial institutions stand at Rs 53,510.6 crore. Just the surplus paid by the RBI surpasses that target by around Rs 45,611 crore.

ICRA’s Nayar said that higher spending towards free foodgrain and vaccinations, the already announced enhancement in fertiliser subsidy, as well as the likely enlargement of the rural job guarantee allocation do indicate a net expansion in expenditure above the budgeted levels

“This, in addition to the potential sharper slippage in disinvestment inflows relative to the higher-than-budgeted surplus transfer by the RBI, suggests a high likelihood that the Centre's fiscal deficit will exceed the budgeted amount,” she said.