Govt's cess spending soars post-pandemic, tops 100% in FY23, FY25

Govt's cess utilisation has increased since FY22

The Centre’s utilisation of cesses has surged sharply over the past five years, with the government not only improving efficiency post-pandemic but also, in several years, spending more than it collected under specific cesses.

On December 5, the Lok Sabha cleared a Bill to levy a special cess on pan masala to strengthen public health and national security. The Health Security se National Security Cess Bill, 2025 will replace the GST Compensation Cess that applied to tobacco products after the 28 percent GST slab was merged with the 18 percent rate.

From under-utilisation to over-deployment

In FY19, the Centre collected Rs 1.74 lakh crore in non-GST cesses but utilised only about half that amount. By FY20, utilisation rose to nearly 73 percent. The pandemic further altered the pattern: despite disruptions, cess utilisation rose to 87 percent in FY21 and to 95 percent in FY22, underscoring greater reliance on earmarked revenues to support sector-specific schemes.

The turning point came in FY23 and FY25, when utilisation exceeded 100 percent. Against collections of Rs 2.24 lakh crore in FY23, the government spent Rs 3.18 lakh crore, equivalent to 142 percent of receipts. FY25 showed a similar pattern, with spending amounting to 103 percent of collections. Even FY24 saw utilisation cross 118 percent despite moderate inflows.

The surge in utilisation aligns with the period when the Centre sharply increased its capital expenditure outlay.

Highways, health and welfare drive the trend

Data from a Lok Sabha reply indicates that the pattern holds across major individual cesses—particularly those funding highways, health and welfare programmes. The Road and Infrastructure Cess remains the largest pool, with the government routinely spending more from the dedicated reserve than it collects in a single year, made possible by drawing down accumulated balances to finance capital-heavy projects.

In FY19, the Centre could spend only half of the Rs 1.1 lakh crore collected through this cess. By FY23, however, spending had ballooned to Rs 2.4 lakh crore, more than four times the year’s collection of just Rs 59,235 crore.

A similar dynamic is visible in the Health and Education Cess, where allocations to the education sector frequently exceed annual inflows due to multi-year commitments. Cesses intended for agriculture, clean energy and welfare have also seen tighter utilisation, with several funds now deploying nearly all annual receipts.

With defence spending gaining ground, the newly proposed national security cess is expected to strengthen funding for India’s defence priorities.