Govt withdraws Covid-linked expenditure restrictions

The Finance Ministry on Friday withdrew expenditure curbs on various departments and ministries imposed in June in the wake of the COVID-19 second wave, reflecting improvement in public finances and the urgency to step up growth.The expenditure restrictions are being withdrawn with immediate effect following a review of the guidelines, said an office memorandum issued by the Economic Affairs Department of the Finance Ministry.The June 30 guidelines regarding regulating the overall expenditure within 20 per cent of the Budget Estimate (BE) in the second quarter (July-September, 2021) have been reviewed, according to the office memorandum.The guidelines "stand withdrawn with immediate effect," it said.Accordingly, it said, all ministries and departments are now permitted to spend as per their own approved monthly expenditure plan or quarterly expenditure plan (MEP/QEP) until further orders during the remaining part of this financial year.Items of large expenditure of over Rs 200 crore will be governed by the guidelines issued by the Budget Division under the Department of Economic Affairs dated August 21, 2017, it added.These directions have been issued with the approval of the competent authority."Any deviation from these guidelines would require prior approval of Ministry of Finance. Any communication by ministries/departments on the subject cited above should be addressed to the Secretary, Department of Expenditure,” the memorandum said.Earlier in June, the Finance Ministry had asked various ministries and departments to restrict expenses to a maximum of 20 per cent of their annual budgetary allocation in the September quarter as part of austerity measures amid the coronavirus pandemic.However, the restrictions on expenditure for the second quarter (July-September period) of the current fiscal were not applicable for select ministries and departments, including health, agriculture, fertilisers, pharmaceuticals and food.All other ministries and departments “will require to restrict overall expenditure within 20 per cent of BE 2021-22 in Quarter 2 (July to September 2021),” according to an office memorandum issued by the Department of Economic Affairs in June this year.The curbs were also not applicable for activities such as pension payments, interest payments and transfer of funds to states.With the drastic drop in COVID-19 cases, there has been increased economic activity, leading to the expectation of double-digit growth during the current fiscal.There has been an improvement in revenue collection on the back of a pick-up in economic activities.For instance, GST revenue remained above Rs 1 lakh crore mark for the second straight month in August at over Rs 1.12 lakh crore, 30 per cent higher than the collection in the year-ago period.The mop-up in August was, however, lower than Rs 1.16 lakh crore collected in July 2021.With regard to direct income collection, the net personal income and corporate taxes collection grew 74 per cent to Rs 5.70 lakh crore so far this fiscal, driven mainly by advance tax and TDS payments.The mop-up of net direct tax (which is arrived at after deducting refunds from gross collection) between April 1-September 22 was at Rs 5,70,568 crore, a 74.4 per cent growth over Rs 3.27 lakh crore collected in the same period last fiscal, the Central Board of Direct Taxes (CBDT) said in a statement. It is a 27 per cent growth over Rs 4.48 lakh crore collected in 2019-20.The gross direct tax collection so far this fiscal stands at over Rs 6.45 lakh crore, a 47 per cent growth over Rs 4.39 lakh crore mopped up in the corresponding period of the preceding year. The gross collection was 16.75 per cent higher than Rs 5.53 lakh crore collected between April 1-September 22 of 2019-20 fiscal.The clear upturn in the government tax revenues and the anticipated inflows from the National Monetisation Pipeline are likely to have triggered the welcome withdrawal of the extant cash management guidelines, Icra Chief Economist Aditi Nayar said.The government's spending had contracted by 5 per cent in April-July 2021 on a year-on-year basis and stood at 29 per cent of the Budget Estimates."With the withdrawal of the expenditure management guidelines, we anticipate that spending will gather pace in the second half of this year, which will be critical to unleash animal spirits and drive a faster recovery in economic activity," she said.

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