Government seeks Parliament nod for Rs 21,246 cr extra spend

30/11/2019

NEW DELHI: A day after indicating the possibility of a fiscal slippage, finance minister Nirmala Sitharaman sought parliamentary approval for gross additional expenditure of Rs 21,246 crore, part of which will be used to recapitalize IDBI Bank Ltd and three state-run insurers.
The government will use the funds to infuse Rs 4,557 crore into IDBI Bank and Rs 2,500 crore into state-run insurance companies through recapitalization bonds. This will help IDBI Bank, now controlled by state-owned Life Insurance Corporation of India, to come out of the restrictive prompt corrective action framework.
The fund infusion into the three state-run general insurers National Insurance, United India Insurance and Oriental Insurance ahead of their proposed merger will help them maintain solvency margin and wipe out losses.
The exchequer’s net cash outgo will, however, be Rs18,995 crore as the remaining expenditure will be met through departmental savings or enhanced receipts.
Most of the proposed spending is under the head of revenue expenditure (Rs15,346 crore), with only Rs3,650 crore earmarked for capital spending, according to the first batch of Supplementary Demands for Grants 2019-20 tabled by the finance minister in the Lok Sabha.
A countercyclical fiscal stance by the central government would help alleviate some of the growth pains, with the immediate multiplier effect being higher if it is focused on revenue spending, said Madhavi Arora, an economist at Edelweiss Securities. “However, the extent of growth uptick owing to higher fiscal spending will be contingent on the extent of deficit slippage. We expect fiscal deficit to slip to 3.7-3.8% in FY20 as against 3.3% budgeted by the government.”
For the Union territories of Jammu and Kashmir, and Ladakh, the finance ministry has proposed grants of Rs8,821 crore. It has also sought Rs1,000 crore for providing cooking gas facilities to poor households.
The additional funding demanded may lead to fiscal slippage by another 10 basis points in 2019-20.
While replying to a discussion on the economy on Wednesday, Sitharaman said it is sometimes difficult to maintain fiscal discipline. “Although the FRBM Act has been there since 2004, on average, the fiscal deficit during UPA-2 was 5.5% of GDP (gross domestic product).
If that’s the level of fiscal deficit they maintained, and today, even when I am facing the challenges and addressing them, the anxiety about fiscal deficit, I appreciate the anxiety, but people who ran it well above 5%, should know what fiscal management is,” she added.
So far, the government has maintained that it will stick to the fiscal deficit target of 3.3% of GDP for 2019-20 and that it has no plans to revise it.
The Indian economy has slowed to the lowest growth in six years, expanding at 5% in the June quarter. Most forecasters have slashed their growth projections for 2019-20 to below 6% and expect the economy to have grown below 5% in the September quarter, data for which will be released on Friday.
A slowing economy has also impacted revenue collections of the government. In the first half (April-September) of this fiscal, the government collected only 36.8% of the Rs16.5 lakh crore net tax revenue target and has exhausted 92.6% of the full-year fiscal deficit target.

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