New Delhi: Finance Minister Nirmala Sitharaman has not budgeted for some potential expenditures in her Budget 2020-21 and will have to factor them into the government finances later during the year.
The Modi government has provided at least Rs 44,000 crore less than what the 15th finance commission recommended for meeting the revenue deficit grants to states.
Revenue deficit grants are handed to a state when the devolution of the tax share is considered to be insufficient to meet the revenue gap of that state.
The 15th finance commission had recommended 14 states get a revenue deficit grant amounting to Rs 74,340 crore. Of this, the highest share was to go to Kerala, which is to receive Rs 15,323 crore in 2020-21.
This recommendation was accepted by the central government in its entirety. However, the union budget made an allocation of only Rs 30,000 crore in the budget towards revenue deficit grants to states for the year 2020-21.
This has led to concerns among states that the Centre was going to reduce the allocation of the revenue deficit grants.
Will hand over promised amount: Finance Ministry
A finance ministry official confirmed that the provision was less than what was recommended by the 15th finance commission but said that the government had no intention of not giving states the promised amount.
“We have accepted the revenue deficit grant recommendation of the 15th finance commission in its entirety. At the time the provisions were made in the budget, we did not have the full implications (of the recommendations of the fifteenth finance commission),” he said, adding that the government will provide for the funds later during the year through supplementary demand for grants and it will be reflected in the revised estimates of the Budget 2020-21 that will be presented in February 2021.
The finance commission had presented its interim report to the President in the first week of December.
Kerala Finance Minister Thomas Isaac had first tweeted expressing concern over the lower allocation, pointing out that it was a serious blow to states that had managed to keep their population in check.
15th UFC ,it is informally learnt, awarded ₹74000 crores as revenue deficit grant to states. In an unprecedented move Centre has slashed it down to ₹30000. It is a serious blow to those states who suffered serious reduction in tax share because of population factor. # 15th UFC
— Thomas Isaac (@drthomasisaac) February 3, 2020
He, however, later pointed out that since the government has accepted this recommendation of the finance commission in its entirety, it must only be a ploy to keep the fiscal deficit target in check.
I am glad that my apprehensions in last tweet have proved to be wrong. The ATR on Interim Report of FC fully accepts the recommendation for ₹74000 cr for RD grants. The under- provisioning of it at ₹30000 in the budget must only be a ploy to keep fiscal deficit under check.
— Thomas Isaac (@drthomasisaac) February 5, 2020
Sitharaman has revised the fiscal deficit projections upwards by 0.5 percentage points each for the years 2019-20 and 2020-21 to 3.8 per cent and 3.5 per cent respectively on account of slowing tax collections due to decelerating economic growth.
Bank capitalisation
The budget has also not allocated any amount towards bank recapitalisation for the first time since it assumed power in 2014. The government hopes that the recoveries from accounts stuck in the National Company Law Tribunal and some of the banks raising funds from the market will mean only a minimum infusion from it.
To be sure, the government may choose to again opt for the route of recapitalisation bonds for infusing capital in public sector banks thereby not affecting the fiscal deficit numbers for now.
When asked in a post-budget press conference, Sitharaman had said that the government will provide capital to state-run banks if required during the year.
In her budget speech, Sitharaman had said that the government had infused Rs 3.5 lakh crore in state-run banks over the last few years for regulatory and growth purposes adding that a “few among them will be encouraged to approach the capital market to raise additional capital”.
N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy, said the government had sufficient time to study the recommendations of the 15th finance commission and make the necessary allocations.
“Since it accepted the revenue deficit grant recommendation of the commission, the government has little choice but to provide for the funds later in the year through a supplementary demand for grants. The government is not sure about its revenue mobilisation next year,” he said, adding that the government may have understated some other expenditures as well like the amount allocated for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA).
He pointed out that the lack of allocation for capital infusion in banks could be on account of a lack of clarity on the required amount.
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