Spending to push GDP growth

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 Spending to push GDP growth

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1. Recession and Budget spending: India faced a huge recession in 2020, with the economy shrinking rapidly. Budget 2021-22 tries to give an expenditure push to the economy. Questions arise about its efficacy and timely impact. A key issue is fiscal position of states, hit due to Covid lockdowns, and GST shortfalls.
2. Immediate future: The Finance Ministry has said that expenditure increase in January-March quarter of FY21 and in April-June quarter of FY22 will start showing results from the beginning of the next fiscal (April-May 2021). Centre has sanctioned ?11,800 crore as part of the special interest-free 50-year loans and nearly half of them have already been disbursed. Centre expects there will not be lag in expenditure and its impact and the process will continue with the expenditure flow.
3. Atmanirbhar bano: Under Atmanirbhar Bharat, the Centre announced that it will give Rs. 12,000 crore under special interest-free 50-year loans for capital expenditure. Nearly ?6,000 crore has been disbursed to States under special interest-free 50-year loans. The remaining amount is likely to be disbursed before March-end. For the fiscal year 2020-21, the government increased the total expenditure to Rs. 34.5 lakh crore in the Revised Estimate (RE) from Rs. 30.42 lakh crore of Budget Estimate (BE).
4. Revenue expenditure: If revenue expenditure has gone up (from ?26.33 lakh crore to Rs. 30.11 lakh crore), so has the Capital Expenditure (from Rs. 4.12 lakh crore to over Rs. 4.39 lakh crore). For the current fiscal, out of total expenditure of Rs. 34.83 lakh crore, revenue share is nearly Rs. 29.2 lakh crore, while capital share is Rs. 5.54 lakh crore. Increase in expenditure was during November-December period. Reverting to provision of spending 33 per cent of BE in the last quarter and 15 per cent of BE in March, as against 25 per cent and 10 per cent respectively, also aims to increase the expenditure to give boost to economic recovery.
5. CGA data: Data from the Controller General of Accounts (CGA) show that total expenditure during April- December period was nearly 75 per cent of BE, which was similar to the corresponding period of FY2019-20. This is significant, considering heavy checks on expenditure during the first seven months of the current fiscal. The pace of expenditure during the remaining period of the fiscal has increased not just for the Centre but also for the States. Now, the pace will continue during the first quarter of the next fiscal, which is basically front loading of expenditure.
6. Front-loading: The government is front loading its expenditure in the first quarter to get maximum advantage of government expenditure on the economy in that particular year. During FY17-FY20, the Union Government expenditure in the first quarter has been more than 25 per cent, confirming to front loading theory. Even in this fiscal, the first quarter expenditure (Rs. 81,59,440 crore) is higher than expenditure in second (Rs. 66,34,660 crore) and third quarter (Rs. 80,07,370 crore). While the first round impact of government expenditure on GDP will be realised in the quarter expenditure is done, second round impact in the form of PFCE (Private Final Consumption Expenditure) may be felt with a lag.
7. Summary: The Indian economy needs a big spending push from the government. However, the Budget 2021-22 remained focused on Supply side and not on Demand side. And the revenue-constrained government is trying hard to have the multiplier effect of infrastructure spending to kick in. Time will tell if the measures worked out or not. For the economy, a sustained real GDP growth rate of 8% is crucial, if demographic dividend is to be realised over the decade.

Read more on - Polity | Economy | Schemes | S&T | Environment

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