The government faces higher expenditure on the centralised procurement of Covid-19 vaccines and the free food ration programme that’s been extended until November.
“Government has decided all ministries and departments should take steps to curb wasteful expenditure,” the Department of Expenditure said in a June 10 directive to ministries seen by ET.
“All ministries and departments are requested to take steps to curtail all avoidable non-scheme expenditure and aim for 20% reduction in controllable expenditure,” it said.
Spending related to containment of Covid-19 has been excluded from the purview of these curbs.
The 18 areas pointed out for cost control measures include overtime allowance, rewards, domestic and foreign travel, office expenses, rents, royalty, publications, administrative costs, supplies and materials, clothing and tenting, cost of ration, minor works and maintenance, advertising and publicity, grants in aid and petrol.
Prime Minister Narendra Modi had on Monday announced increased centralised procurement of vaccines for everyone over the age of 18 years and extension of the free ration programme until November.
Under the current system, states are responsible for vaccinating those in the 18-44 age group while the Centre pays for those 45 and above. The new vaccination regime will start June 21.
Vaccine procurement costs could rise to Rs 50,000 crore against the budgeted Rs 35,000 crore while the free food programme will cost a further Rs 1 lakh crore. In addition, the government has also enhanced the fertiliser subsidy for the current financial year. Experts see enhanced expenditure as a risk to the fiscal deficit target for FY22, projected at 6.8% of gross domestic product.
“Overall, while these measures are growth positive, they suggest an increasing risk that the central government will slip on its fiscal deficit target of 6.8% of GDP in FY22 (year ending March 2022),” Nomura said in a note. This could weigh on India’s sovereign ratings prospects, the Japanese brokerage firm said.
The ministry had last year imposed quarterly spending curbs on ministries and departments following the nationwide lockdown imposed to contain the first wave of the pandemic and the subsequent fall in revenue. These were relaxed later in the year when collections improved.
The finance ministry, while seeking to contain wasteful spending this year, is pushing ministries to frontload their capital expenditure. The Department of Expenditure had in April eased expenditure management rules to boost capital spending, exempting it from curbs imposed in 2017.