India Extends Spending Curbs For Government Departments

The move comes at a time the government’s cash position reamins stressed amid the coronavirus pandemic.

Indian two thousand rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Indian two thousand rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

India extended the cap on spending by ministries and departments by three months, as cash position of the government remains stressed amid the coronavirus pandemic.

“Considering the need to effectively manage cash flows of the government, it has been decided to retain and continue with same expenditure management measures in the second quarter (July-September) as applicable in first quarter (April-June) of 2020-21,” an office memorandum by the Ministry of Finance said.

The ministry, in April, had classified government departments into three categories and tightened their spending for the April-June period, barring for those fighting the outbreak. The ministries or departments under category ‘C’ such as petrochemicals, coal, commerce, telecommunications, among others, could spend only 15% of budget estimate for the current year, while those in category ‘B’ such as fertilizers, posts, defence services can spend only 20%. No curbs were placed for departments under category ‘A’ that include agriculture, ayurveda, pharmaceuticals, civil aviation, rural development, among others. These restrictions will now continue for the quarter ending September.

A decline in direct and goods and services tax collections further stressed the government’s revenue at a time the economy is headed toward its first full-year contraction in four decades.

The government has reprioritised its spending in the current fiscal due to the Covid-19 outbreak with focus on minimising spending on things that have low multiplier effect on the economy, and cutting dependence on items with high import intensity, Expenditure Secretary TV Somanathan had told BloombergQuint in an interview last month.

The memorandum, however, spells out additional guidelines stating the amount that remains unspent in a month will not be automatically carried forward into next month. Similarly, unspent amount or allocation in a quarter cannot be carried forward without specific approval from the expenditure secretary.