LIVE NOW:Watch the Definedge Conference on Market Analysis (DECMA). Join Now

Q3 GDP data: Government consumption spending growth in FY21 likely to be slower than FY20, show advance estimates

During the first quarter of the current financial year, GFCE was 16.4 percent of the GDP, pushed by a rise in government spending.

February 26, 2021 / 09:16 PM IST

Government's consumption revenue spending saw a marginal decline in the third quarter of the current financial year, numbers released by the National Statistics Office (NSO) show. While growth is expected to rebound in the fourth quarter, the  pace of government consumption spending growth in FY21 is likely to drop from the previous year’s level, show estimates.

Government Final Consumption Expenditure (GFCE) in real terms declined 1.1 percent from a year ago in the October-December quarter. It had declined 24 percent in the fiscal second quarter after growing 12.8 percent during April-June. Remember that the first quarter had borne the brunt of the pandemic-induced lockdowns.

"Despite the revenue spending of the GoI and the state governments recording a growth in Q3 FY2021, the government final consumption expenditure component of GDP displayed a mild contraction in Q3 FY2021," said Aditi Nayar, principal economist, ICRA.

GFCE includes government expenditures including compensation to employees, purchase of non-durable goods and also durable goods which are used for defence. It does not include government capital spending which gets captured in the gross fixed capital formation (GFCF) component of the GDP numbers.

As a percentage of Gross Domestic Product (GDP), government consumption spending’s share declined to 9.8 percent in the third quarter compared to 10 percent during July-September as other sectors of the economy such as investment demand grew faster.

Close

Still, the second advance estimate numbers project government consumption spending to rise by 29 percent in the current (January-March quarter). What’s more, for the full fiscal year 2021, government consumption spending is estimated grow only 2.9 percent compared to a 7.9 percent in FY20.

This is projected to happen despite the government announcing a special economic package under AtmaNirbhar Bharat. It said that these measures, including steps taken by RBI, amounted to about Rs. 27.1 lakh crore – more than 13 per cent of India’s GDP.

To be sure, capital expenditure is increasing as the growth in GFCF shows. Moreover, the Union Budget had given an additional thrust to government spending for 2021-22 lining up a capital expenditure of Rs 5.54 lakh crore from Rs 4.39 lakh crore in 2020-21.

During the time of a pandemic-induced slump, a rise in public expenditure is considered key to reviving the economy. The Economic Survey for 2020-21 had also batted for a big push in public spending.

The government’s AtmaNirbhar package included cash transfer relief measures for households, employment provision measures under Pradhan Mantri Garib Kalyan Rojgar Abhiyaan and increased allocation under MGNREGS, credit guarantee and equity infusion-based relief measures for MSMEs and NBFCs and regulatory and compliance measures.
Shine Jacob
Sections