Expenditure Budget- How much and on what Government of India spends over Rs. 31 lakh crore?

Expenditure Budget and Programme

How much does the Central Government spend and on what?

What is the size of budget 2019-20 expenditure?

Indian constitutional scheme envisages that every rupee of expenditure to be made by the Government is approved by the Parliament. The Appropriation Bill is considered and passed by the Lok Sabha to authorize the Government to withdraw money from the Consolidated Fund of India (where all the revenues and loans taken by the Government are received) for making expenditures which are also considered specifically and voted by means of demand for grants (other than some expenditure which are charged on the Consolidated Fund).

The expenditures so authorized are publicly informed as part of the budget papers by means of an Annual Financial Statement (AFS) and Expenditure Budget. Expenditure Budget has three documents- a. Expenditure Profile reports budgeted expenditures in thematic form, b. Expenditure Budget which has Ministry and Department wise allocation of budgets on major line items and Demands for Grants of Central Government which presents the expenditure proposals in the demand form.

Total expenditure of the Central Government, as contained in the Expenditure Budget for the year 2019-20, was projected/ approved to be Rs. 27.86 lakh crore, representing an increase of 13.39% over the Revised Estimates of Rs. 24.57 lakh crore. Provisional/actual expenditure for 2018-19, which had become available at the time of presentation of final Budget for 2019-20 was Rs. 23.11 lakh crore. The estimated total expenditure of 2019-20 is 20.55% higher than the actual expenditure of 2018-19. Central Government’s budgeted expenditure at Rs. 27.86 lakh crore makes up 13.21% of the projected GDP 2019-20.

The Central Government also makes expenditures which are not budgeted (off-budget) or are budgeted by deducting certain receipts in the Consolidated Fund or Public Account (below the line or Receipts negatived Expenditure?). Actual Expenditure of the Central Government in any year would be aggregate of a. Budgeted Expenditure, b. Off Budget Expenditure and c. Below the Line or Received Negatived Expenditure.

As explained in my blog State of the Fiscal Deficit, Debt and Liabilities, there are at least two major types of expenditures (Fully Service Bonds or FSBs and food subsidy paid through NSSF) and one major Below the Line type of expenditure (Bank recapitalisation) which need to be included in the expenditure of central government to get a realistic idea of the scale of Central Government’s expenditures. While the numbers for FY 2019-20 are not available owing to its very nature, like earlier years, the three broad heads of expenditure- recapitalisation of banks and other financial institutions like IIFCL and Exim Bank, payment of food subsidy via NSSF and expenditure/ investment funded through FSBs, are likely to be between Rs.175000-225000 crore this fiscal.

Railways used to have a separate budget earlier. The railway budget has been integrated with the Central Government Budget for last four years. Still, however, only the capital expenditure funds provided from the ‘general budget’ are included in the Budget Expenditure of the Central Government. Rest of the capital expenditure, made from the resources raised by the Railways, though incurred from the Consolidated Fund of India is still deducted from the Budget like the recapitalisation bonds. While the revenue account of the railways does not represent any real expenditure on net basis, it appears very much necessary to include the capital expenditure made by the railways from the resources raised by railways as the capital expenditure of the Central Government. As per the Expenditure Budget of the Government of India, a total of Rs. 65837 crore is budgeted as capital expenditure. Total capital expenditure of the Railways (as presented in the Expenditure Profile is 160176 crore. Thus, the difference of Rs. 94339 crore should be added as the expenditure of the Central Government.

There are a few other expenditures which are off-budget or below the line on the pattern described above. However, as these would not add up too material, we might ignore these for the present.

Adding up these expenditures, the Central Government’s budgeted expenditure for 2019-20 should be taken as Rs. 31.06 lakh crore (Rs. 27.86 lakh crore as budgeted, Rs. 2.25 lakh crore off-budget/below the line and Rs. .94 lakh crore capital expenditure of railways). This amounts to 14.72% of the projected GDP of 211 lakh crore.

Where does the Central Government spend her money?

The Central Government’s budgeted expenditures are not easy to comprehend, even in the aggregates.

The expenditure profile classifies the budgeted expenditure of Rs. 27.86 in two broad categories. The first category- “Central Expenditure”, denotes what will be spent by the Ministries and Departments on the staff, schemes and other expenditures is stated at Rs. 21.89 lakh crore. This expenditure is what the central government spend. The second category- “Transfers” denotes what the Central Government Ministries/ Departments would transfer- to States, Grantee bodies and the like. This class of expenditure is budgeted at Rs. 5.97 lakh crore.

The “Central Expenditure” further has three broad classes of expenditure- “Establishment”, “Central Sector Schemes” and “Other Central Expenditure”.

The Establishment Expenditure, budgeted at Rs. 5.46 lakh crore, is to take care of salaries, dearness and other allowances, pensions and other establishment related expenditures- travelling allowances etc. There are 721 schemes listed at the detailed Statement “Central Sector Schemes” (Statement 4B of the Expenditure Profile) aggregating to Rs. 8.71 lakh crore of budgeted expenditure for 2019-20. The Expenditure Profile 2019-20 has a detailed statement “Other Central Expenditure”, (Statement 4C) which lists as many as 132 line-items for which total budget of Rs. 7.72 lakh crore is provided.

The “Transfers” category of expenditures also have three broad classes of transfers.

The “Centrally Sponsored Schemes” comprise 30 broad centrally sponsored schemes (listed at Statement 4A) with budgeted outlay of Rs. 3.32 lakh crore. These are the schemes of development and redistribution which are primarily in the domain of the States but where the Central Government holds out promise of considerable funds to get the States undertake the schemes selected by the Central Government.

Second major category of transfers “Finance Commission Transfers” does not have a specific Statement in the Expenditure Profile but this class includes the transfers- contribution to the States’ Disaster Relief Fund, grants for local bodies etc. recommended by the Finance Commissions. This category of transfers has a budget of Rs. 1.20 lakh crore in 2019-20.

The third category of transfers, budgeted at Rs.1.45 lakh crore and styled “Other Transfers” are listed in the Statement 4D, which transfers to the States essentially, other than for CSS and the Finance Commission transfers. The largest item in this is Compensation to States/ Union Territories for revenues losses on roll out of GST of Rs. 1.01 lakh crore and some other transfers like additional central assistance for externally aided projects, grant for nudging the States to grant improved salary scales to the University and College Teachers.

Expenditures under ‘control’ or at ‘discretion’ of the Government of India

Considerable amount of the central government expenditure is not in the control of the Central Government. Such expenditures can be described as kind of committed, non-discretionary or mandatory expenditures.

Four types of expenditures would fit this description.

Establishment expenditure budgeted at Rs. 5.46 lakh crore, Interest payments budgeted at Rs. 6.60 lakh crore, Finance Commission mandated grant transfers budgeted at Rs. 1.20 lakh crore and GST Compensation budgeted at Rs. 1.01 lakh crore are the type of expenditures which the Central Government would have to undertake/ incur whether it wants or not. The Central Government has virtually no control over these types of expenditure in the sense that these cannot be curtailed or postponed. These expenditures total Rs. 14.27 lakh crore, which make up as much as 51.22% of the total BE 2019-20 expenditure of Rs. 27.86 lakh crore. More than half of the expenditure budget of the Government of India is effectively out of the control of the Central Government.

The remaining budgeted expenditure of Rs. 13.59 lakh crore (Rs. 27.86 lakh crore minus non-discretionary expenditure Rs. 14.27 lakh crore) represent expenditures where the Central Government has the discretion or choice whether such expenditure should be undertaken or not undertaken and also the quantum thereof.

Discretionary expenditures also have considerable real potential of influencing economic growth and redistribution for attaining social justice.

These discretionary expenditures are budgeted under three broad heads.

First, as Central Sector Schemes. These Schemes (Statement 4b, Expenditure Profile) has total outlay of Rs. 8.71 lakh crore.

Second, Other Central Sector Expenditure (Statement 4c, expenditure Profile) has total outlay of Rs.7.72 lakh crore. Taking out interest payments budget of Rs. 6.60 lakh crore, which are not discretionary expenditure, expenditure budget of remaining Rs. 1.12 lakh crore can be considered as discretionary.

Third, Other Transfers which has the total budget of Rs. 1.45 lakh crore (Statement 4d, Expenditure Profile). As expenditure of Rs. 1.01 lakh crore for GST Compensation payments is budgeted under this class, remaining expenditure of Rs. .44 lakh crore can be taken as expenditure budget under control of the Government of India.

Fourth, Rs. 3.32 lakh crore budgeted under the Centrally Sponsored Schemes is also discretionary expenditure of the Government of india.  

Thus, an expenditure of Rs. 13.59 lakh crore (8.71+1.12+.44+3.23 lakh crore) constitute the discretionary expenditure of the Government of India.

In addition, Off-budget expenditure of Rs. 2.25 lakh crore and Railways capital expenditure of Rs. .94 lakh crore can also be treated as discretionary expenditure of the Central Government. In all, a total of Rs. 16.78 lakh crore (Rs. 13.59 lakh crore of budgeted and Rs. 3.19 lakh crore of non-budgeted) expenditure (8.43% of the projected GDP of 211 lakh crore) is the universe of expenditure which the Central Government has influence and discretion on.

What does the Central Government spend its discretionary expenditure on?

a. Centrally Sponsored Schemes (CSS) expenditure Rs. 3.32 lakh crore

CSSs (separately listed at Statement 4a, Expenditure Profile) are a bunch of schemes designed for redistribution, economic growth, investing in social infrastructure and improvement in human capital. The subjects where the Central Government intervenes through these schemes are in the domain of the States as per Constitutional Scheme of distribution of power. However, using authority given under Article 282 of the Constitution, by providing grants for undertaking the expenditures so desired by the Central Government, the States are persuaded/nudged to take up these CSS, including by providing the counterpart funding.

The CSSs are designed to serve different objectives.

Two major schemes (classified as Core of the Core Schemes) National Social assistance Programme (NSAP) and Mahatma Gandhi National Rural Employment Guarantee Programme (MGNREGA) are essentially pure redistribution schemes. NSAP (outlay Rs. 9200 crore) reaches out to old, physically handicapped, widows and other sections of society who are not in a position to earn enough to keep the body and soul together. MGNREGA (outlay Rs. 60000 crore) provides a minimum wage insurance to manual and unskilled workers unable to find remunerative work in the labour market.

Four schemes in agriculture and allied area are designed to be growth-oriented schemes- Green Revolution (outlay Rs. 12561 crore), White Revolution (outlay Rs. 2240 crore), Blue Revolution (outlay Rs. 560 crore) and Pradhan Mantri Krishi Sinchai Yojna (PMKSY) (outlay Rs. 9682 crore). Together, these four schemes are budgeted to transfer a little over Rs. 25000 crore to the States for undertaking interventions for boosting agriculture growth. There are several other schematic interventions, which the Central Government makes in agriculture and allied areas, which I will discuss later.

Major infrastructure intervention under CSS umbrella are being made through four schemes of Pradhan Mantri Gram Sadak Yojna (PMGSY) (outlay Rs. 19000 crore), Urban Rejuvenation Mission: AMRUT and Smart Cities (outlay Rs. 13750 crore), Modernisation of Police Forces (outlay Rs. 3462 crore) and Shyama Prasad Mukherjee Rurban Mission (outlay Rs. 800 crore).

Rest of the schemes in the CSS stable are largely aimed at improving human capital and quality of life. Amongst the major CSS schemes in this category are Swachh Bharat Mission (outlay Rs. 12644 crore), National Health Mission (outlay Rs. 33651 crore), National Education Mission (outlay Rs. 38547 crore), Mid-Day Meals in Schools (outlay Rs. 11000 crore), Integrated Child Development Scheme or Umbrella ICDS (outlay Rs. 27584 crore), National Livelihood Mission- Ajeevika (outlay Rs. 9774 crore) and Jobs and Skills Development (outlay Rs. 7260 crore).

Most of the 30 CSS listed in the Union Budget Expenditure Profile have several more sub-schemes, operating as distinct schemes in practice. For example, within the umbrella of the CSS Green Revolution, the Expenditure Budget of Department of Agriculture and Farmers Welfare lists as many as 20 distinct schemes. This includes Rastriya Krishi Vikas Yojana (RKVY), National Food Security Mission (NFSM), National Project on Organic Farming, National Project on Soil Health and Fertility, National Mission on Oil Seed and Oil Palm, National Mission on Horticulture and so on. Many of these are Mission kind of Programme in their own right. It is impossible to envisage Green Revolution as one single CSS. There are in all about 150-200 distinct schemes operating under 30 CSS. Rationalisation of CSS has been a subject of interest, debate and conflict for many decades now.

14^th Finance Commission had envisaged that the Central Government would reduce the plethora of CSSs after a much larger share of central taxes (42%) was recommended to be transferred as untied devolution to the States. However, the temptation of the Central Government to keep interfering in the subjects allocated to the States is so large that this did not happen. After some downsizing of CSS in 2015-16 and raising of the share of States counter-part funding, the CSSs have come back in full force as the preferred mode of development intervention by the Centre. The actual expenditure under CSS was 2.85 lakh crore in 2017-18, which has gone up to Rs. 3.05 lakh crore in RE 2018-19 and to Rs. 3.32 lakh crore in 2019-20.

b. Capital expenditure of Rs. 3.31 lakh crore

Expenditure Budget papers don’t print a distinct statement on capital expenditure of the Central Government. It is spread over several statements.

The bulk of the capital expenditure, Rs. 3.02 lakh crore, is budgeted under the “Central Sector Schemes”. Additional Capital outlay of Rs. .21 lakh crore is budgeted under ‘Other Central Expenditure’. A small amount of Rs. .08 lakh crore has been budgeted under “Other Transfers”. Total budgeted Capital Expenditure is Rs. 3.31 lakh crore.

Most people would prefer the Government to make capital expenditure and be not worried if the Government were to borrow for capital expenditure. Budget Estimates 2019-20 provides for Rs. 3.31 lakh crore of expenditure classified as Capital Expenditure.

The largest head of capital expenditure is the capital outlay for Defence Expenditure at Rs. 1.03 lakh crore (over 30% of capital expenditure outlay). It is well justified for security needs, but it would be wrong to assume that this capital expenditure leads to any growth promoting investment.

There are four major infrastructure related capital expenditures. The budget provides the largest capital expenditure for transportation. Central budget provides a capital contribution to Railways of Rs. 65.8 thousand crore. Further, there is provision for expenditure on capital works of National Highways of Rs. 36.7 thousand crore, expenditure on other Road works of the Ministry of Road Transport of Rs. 35.4thousand crore and expenditure budget of Rs. 17.7 thousand crore for Metro Projects. All these expenditures are meant for building transportation backbone of the country. Total capital outlay of Rs. 155.6 lakh crore on transportation amounts to nearly 46% of the entire capital expenditure.

Equity and other financial contributions to different organisations have been budgeted under the 21.01 lakh crore of capital outlay provided under the head “Other Central Expenditure”. This includes, Rs.3000 crore to Nuclear Corporation, Rs. 1000 crore for Food Corporation of India, Rs. 5500 crore for investments in multilateral financial institutions, Rs. 4000 crore in other financial institutions like NIIF, Rs. 1900 crore under Police Research and Rs. 1260 crore for Contribution to CPSUs. Rs. 7.5 lakh crore of capital outlay budgeted under “Other Transfers” is entirely meant towards the capital assistance provided by the Central Government to the States, mostly North Eastern and other Himalayan States as part of the Externally Aided Projects.

A closer examination of the capital expenditure profile would suggest that a good part of the capital expenditure is not investment for economic growth (30% for defence expenditure) and bulk of the capital expenditure is for transportation sector only (46% of capital expenditure).

There are certain capital expenditure which are financed by the Government of India though not incurred by the Central Government. Schemes of the Ministry of Power (DDUGJY, IPDS and SAUBHGYA) are essentially capital expenditure schemes though such expenditures are financed by the GoI as grants and loans from the PFC/REC. Most of the Off-Budget expenditure under Fully Serviced Bonds and equity contribution for the 

Public Sector Banks's equity investments are also capital expenditure.

Productivity of the capital expenditure made from the GoI Budget (including off-budget), from the view point of economic/financial return on these “investments” is usually not paid much attention. Most of these capital expenditures are used as “grants” instead of “capital investments”. These investments are not “risk capital”.

c. Major Subsidies (Rs. 3.39 lakh crore)

The Government publishes a separate statement for major subsidies (Statement 7 of the Expenditure Profile). A total of 17 kinds of subsidies are listed in this Statement. All these subsidies form part of the Statement of Central Sector Schemes. The expenditure projection of Rs. 8.71 lakh crore includes the subsidy expenditure of Rs. 3.39 lakh crore.

These subsidies constitute discretionary expenditure of the Central Government. These subsidies are designed to reduce the consumers’ cost of specific products like fertiliser, food and LPG.

Budget 2019-20 provides for an expenditure of Rs. 3.39 lakh crore for five major heads of subsidies.

The largest provision is for Food Subsidy (Rs. 1.84 lakh crore) followed by Fertiliser Subsidy (Rs. .8 lakh crore: Urea Rs. 53.63 thousand crore and Nutrient Based Subsidy Rs. 26.37 thousand crore).

In practice for last few years, the budgeted provision of food subsidy is substantially reduced at the end of the financial year (not taken note even in the revised estimates). Actuals of 2017-18 at Rs. 100282 crore were lower by more than Rs. 40,000 crore compared to the RE of Rs. 140282 crore.

Two other prominent subsidies are: Petroleum & Gas (Rs. 37.48 thousand crore- LPG: Rs. 32.99 thousand crore and Kerosene: Rs.4.49 thousand crore) and Interest (Rs. 25.06 thousand crore, primarily comprising Interest Subvention to provide Short Term Credit for Farmers Rs. 18 thousand crore, Interest Equalisation Scheme Rs. 2.9 thousand crore and Interest and Guarantee support in the Department of Higher Education).

Other Subsidies of Rs. 12.20 thousand crore include Market Intervention Support in the Ministry of Agriculture Rs.3000 crore, Support to State Agencies for movement of food under National Food Security Mission Rs. 4100 crore, Procurement of Cotton by Cotton Corporation of India Rs.2018 crore and Price Stablisation Fund Rs. 2000 crore.

d. Rest of the discretionary expenditure (Rs. 3.57 lakh crore)

Rest of the discretionary expenditure of Rs. 3.57 lakh crore (total discretionary expenditure Rs. 13.59 lakh crore minus capital expenditure Rs. 3.31 lakh crore minus provision for major subsidies of Rs. 3.39 lakh crore minus Centrally Sponsored Schemes budget of Rs. 3.32 lakh crore i.e. Rs. of the Central Government is spread over several statements.

Overall expenditure budget of Rs. 8.71 lakh crore in the Statement on Central Sector Schemes includes entire subsidies budget of Rs. 3.39 lakh crore and bulk of capital expenditure of Rs. 3.02 lakh crore. Remaining expenditure budget of Rs. 2.3 lakh crore constitute the major part of the rest of discretionary expenditure.

Remaining expenditure of Rs. 1.27 lakh crore (Rs. 3.57 lakh crore minus Rs. 2.3 lakh crore) is partly under the Other Central Expenditure and under Other Transfers. Other Central Expenditure has Rs. .91 lakh crore (Rs. 1.12 lakh crore minus capital expenditure of Rs. .21 lakh crore) and Other Transfers has Rs. .36 lakh crore (Rs. .44 lakh crore- minus capital expenditure of .08 lakh crore) under the Other Transfers.

These expenditures are meant to fund all the residual central sector schemes and all the services which the central government delivers. Therefore, it might be advisable to call this stream of central government expenditure “Central Government Services and Support Expenditure”.

This expenditure provision supports some major schemes like Crop Insurance Scheme (Rs.14000 crore), PM-Kisan (Rs. 75000 crore), Atomic Energy establishment and programme (Rs.6033 crore), Interest payment of debt overtaken from Air India (Rs. 2600 crore), Compensation to Service Providers for creation and augmentation of telecom infrastructure (Rs. 8350 crore), Price Stabilisation Fund under Ministry of Consumer Affairs (Rs. 2000 crore), Assistance to State Agencies for intra-state movement of foodgrains and fair price shop margins under National Food Security Scheme (Rs. 4102 crore), Promotion of Electronics and IT Hardware Manufacturing (Rs. 876 crore), Promotion of Digital Payments (Rs. 600 crore), grant assistance to neighboring countries (Rs. 4400 crore), Pradhan Mantri Swasthya Suraksha Yojana (Rs. 2860 crore), AIDS and STD Control Programme (Rs. 2500 crore), Family Welfare Schemes (Rs. 700 crore), Freedom Fighters Pension (Rs. 952 crore), Interest Subsidy and contribution for Guarantee Funds (Rs. 1900 crore), Technical Education Quality Improvement Programme (Rs. 950 crore), National River Conservation Programme (Rs. 1220 crore), National Ganga plan and Ghat works (Rs. 750 crore), Employees Pension Scheme contribution (Rs. 4500 crore), Pradhan Mantri Shram Yogi Mandhan (Rs. 500 crore), Pradhan Mantri Karam Yogi Mandhan (Rs. 750 crore), Prime Minister Employment Generation Programme for funding EPF contribution (Rs. 2327 crore), Education Empowerment under Ministry of Minority Affairs (Rs. 2362 crore), renewables support programme (Rs. 5131 crore), LPG connections to poor households under UJAWALA programme (Rs. 2724 crore), payment towards under-recovery in petroleum and gas (Rs. 4058 crore), Phulpur Dhamra Haldia Pipeline (Rs. 1552 crore), Deen Dayal Upadhyaya Gram Jyoti Yajna (Rs. 4066 crore), Integrated Power Development Programme for urban area electricity infrastructure (Rs. 4380 crore), maintenance under Road Works (Rs. 10527 crore), Science and Technology Institutional and Human Capacity Building (Rs. 1085 crore), Bio-technology research (Rs. 1475 crore), National fellowship for SCs (Rs. 360 crore), Department of Space (Rs. 5049 crore), MP LAD programme (Rs. 3960 crore), Procurement of Cotton (2017 crore), Swadesh Darshan (Rs. 1106 crore), and Khelo India (Rs. 500 crore).  

Most other expenditures are small. There are 235 line item schemes in the Central Sector Schemes where allocation for 2019-20 is less than Rs. 50 crore. What impact these schemes might have can be imagined easily.

Summarised classification of total budgeted expenditures of Central Government

Central Government’s budgeted expenditure at Rs. 27.86 lakh crore makes up 13.21% of the projected GDP 2019-20. Government’s tax revenues (Rs. 16.50 lakh crore) funds only 59.20% of Central Government’s Budgeted Expenditure. Non-tax revenues, including from disinvestment of equity of public sector enterprises, fills part of the gap. The rest is the Fiscal Deficit of the Government which is only funded from the Debt raised by the Government.

The Budget Documents of the Government of India do not present the Expenditure Estimates which are more amenable for analysis thereof for their impact on economic development, growth and social action. Let me summarise the Central Government Budget Estimates for BE for 2019-20:

Non-Discretionary Expenditure:

Central Government Establishment Expenditure:                           5.46

Interest Payments:                                                                           6.60

Finance Commission grants:                                                           1.20

Compensation for GST                                                                    1.01

Total Non-discretionary                                                               14.27

     

Discretionary Expenditure

Centrally Sponsored Schemes                                                      3.32

Major Subsidies (Food, Fertiliser, LPG, Interest):                          3.39

Capital Expenditure (other than on Establishment):                      3.31

Central Government Schemes and Services                                  3.57

Total Discretionary                                                                        13.59

Total                                                                                                 27.86

A little closer look at Non-discretionary expenditures of Establishment and Interest

A lot of central government expenditure has also become quite inflexible leaving no choice with the Governments to do anything with such expenditure. Establishment expenditure comprising largely salaries and pensions, interest payments, capital expenditure of the type of defence procurement expenditure, many long-standing development programme which are just carrying on, a few major subsidies fall in this category. The commitment to stick within the fiscal deficit parameters, in the absence of sufficient genuine reduction in fiscal deficit to reach to the committed limits, also impart lot of inflexibility as attention do get diverted to using devices like postponing expenditure payments, shifting expenditures outside the budget which indicate the straight jacket the Governments get in while planning  its expenditure programme and policies.

Combined expenditure of the Central Government (actuals) in 2017-18 on interest payments (Rs. 528952 crore) and establishment (Rs. 473031 crore) was Rs. 1001983 crore, which turned out to be in excess of 45% of the total expenditure of Rs. 2141973 crore incurred. It needs to be remembered whenever we talk about the ability of the central government to adjust its expenditure that very close to half of all expenditure is simply not in control of the central government. It is the first charge on the revenues and debt raised and has to be so paid.

Establishment Expenditure

Establishment expenses of the Government primarily comprise of salary and allowances and pension expenditure. Total establishment expenditure were Rs. 473031 crore in 2017-18, the last year for which data of actuals are available. Pay and allowances expenditure was Rs. 244999 crore, which made up 51.69% of total establishment expenditure. Pension payments at Rs. 145745 crore took up another 30.81% of total establishment expenditure. Rest of the establishment expenditure at Rs. 82787 crore constituted only 17.5%. Salaries and allowances and Pensions put together were responsible for 82.5% of the establishment expenditure. Bulk of the pension payment is attributable to pension of defence personnel. In 2017-18, total pension payment to civilian employees of the Government of India was Rs. 53747 crore, whereas pension payments to defence personnel amounted to Rs. 92000 crore, with pension payments to retired army men being Rs. 81097 crore.

Government’s establishment expenditure sees a spike in the year following Pay Commission report every ten year. In other years, it grows largely in line with inflation trend as the annual increments are relatively much smaller in percentage terms these days. Seventh Pay Commission report was implemented in the financial year 2015-16. That year saw Central Government’s salaries and allowances expenditure go up sharply from Rs. 185684 crore in 2015-16 to Rs. 232863 crore, an increase of 25.41%. Likewise, pension payments rose from Rs. 96771 crore in 2015-16 to Rs. 131401 crore, an increase of 35.79%. These sharp rise in salaries, allowances and pension payment resulted in total Establishment expenditure going up by over 25% to Rs. 423850 crore in 2016-17. Establishment expenditure reverted to normal increase thereafter as it rose by only 11.6% in 2017-18, which also had some element of delayed payment of arrears. 2018-19 RE at 510275 crore and 2019-20 BE at 546296 crore project increase of only 9.3 and 5.7% only.

Interest Payments

The Government of India, on its own account, is a very large debt issuer. A large stock of debt securities have now built with GoI’s total Debt and Liabilities exceeding 45% of GDP. Large pre-emption of savings and credit created in the economy by the Government leads to interest rate ruling very high. All this has led to the interest expenditure of the Government of India balloon.  Government of India classifies interest payments in five broad heads- interest on internal debt, interest on external debt, interest on provident funds and other specific accounts in public account, interest on reserves funds and interest on other liabilities. Interest on internal debt constitutes bulk of interest payments now. In 2017-18, interest on internal debt amounted to Rs. 487527 crore, which was 89.71% of total interest paid (Rs. 543404 crore). Interest on market loans (usual dated long-term market securities issued by the Government of India) amounted to Rs. 404132 crore (74.37% of total interest paid). Interest on External Debt is quite small now as such loans on Government of India account are stabilized and will decline going forward. Only an amount of Rs. 5951 crore was paid on this account. As Provident Fund deposits grow at a steady rate only, interest payments under this head are also small and growing at very slow rate. In 2017-18, it amounted to Rs. 33135 crore, which actually had a negative growth rate of 2.48% over the interest paid under this head in 2016-17. Government of India earns some money usually as premium on the government securities issued. Likewise it also earns some interest on market loans. The Finance and Accounts state this income on the revenue side, whereas Budget Papers and Analytical Reports display the interest payment net of these incomes. In 2017-18, such net receipts were about Rs. 14755 crore, which when netted made the net interest expenditure to be around Rs. 528600 crore.

Interest on Other Obligations actually represent the result of by-pass on fiscal deficit financing attempted from time to time by the Government of India. Interest paid on this head during 2017-18 was Rs.15975 crore. It included interest on Petroleum Bonds (Rs. 9583 crore), interest on special securities issued to Food Corporation of India (Rs. 1319 crore), to Oil Marketing Companies (Rs. 407 crore), interest on bonds issued to fertiliser companies (Rs. 1174 crore) and interest paid to SBI for the GoI bonds subscribed by SBI for enabling GOI to invest in the rights issue of SBI (Rs. 835 crore). Almost all of these obligations were taken on by the UPA Government between 2004-05 to 2012-13). NDA Government has also resorted to this route for recapitalizing the Public Sector Banks and also other financing institutions like EXIM Bank and IIFCL ltd. These bonds were first issued in 2017-18. First interest obligations for this came up for payment in 2018-19. As further bonds were issued in 2018-19 and 2019-20 and by now the amount of bonds issued exceed Rs. 215000 crore, interest payment on these obligations would exceed entire interest payment made during 2017-18 in this head.

Expenditure on interest payments is the largest head of payment and a little less than 25% of total expenditure of the Government of India. About 1/4^th of all the resources which the Government of India raises every year, tax, non-tax and debt all taken together, goes only to service interest on the debt and liabilities undertaken by the Government of India in previous years. This is an extra-ordinary large pre-emption of resources. In 2017-18, interest payment at Rs. 528900 crore out of total budgetary expenditure of the Government at Rs. 2141973 crore was at 24.6% of total expenditure. This has seen minor decline in the year 2018-19 as per the provisional numbers released. In this year, net interest payments amounted to Rs. 582675 crore out of total expenditure of Rs. 2311422 crore exceeding 25% of total expenditure at 25.21%.

With the Government being in no position to curtail fiscal deficit and issuance of liabilities outside the Budget also continuing unabated, there is every likelihood that the interest payment in 2019-20 will also exceed 25% of total expenditure.

CONCLUSION

The Government collects the resources for undertaking expenditure programme and deliver services by either taxing people or by borrowing debt appropriating savings of the people from the market. The resources raised by the Government deprive the factors of production of the equal amount of resources for consumption and investment. As the productivity of government expenditure is generally lower than the productivity of private expenditure, it makes sense if the Government undertakes only those expenditure which deliver benefits commensurate with the benefits forgone on the resources raised from the private sector.

The Central Government is budgeted to spend Rs. 27.86 lakh crore in 2019-20, which makes up 13.21% of the projected GDP 2019-20. Real central government expenditure is still higher as a considerable amount of funds are spent outside the budget. Central Government’s expenditure on recapitalisation of banks and two other financial institutions like IIFCL and Exim Bank, payment of food subsidy via NSSF and expenditure/ investment funded through FSBs, are likely to be between Rs.175000-225000 crore this fiscal. In addition, railways capital expenditure not funded from general budget is Rs.94000 crore.

More correct measure of the budgeted expenditure for 2019-20 is thus Rs. 31.06 lakh crore (Rs. 27.86 lakh crore as budgeted, Rs. 2.25 lakh crore off-budget/below the line and Rs. .94 lakh crore capital expenditure of railways). This amounts to 14.72% of the projected GDP of 211 lakh crore.

Of the budgeted expenditure of Rs. 27.86 lakh crore, a large part gets consumed in payment of interest and establishment expenditure. In 2019-20, an expenditure of Rs. 5.46 lakh crore is for taking care of Central Government Establishment Expenditure and Rs. 6.60 lakh crore to take care of the Interest Payments. Together with finance commission recommended mandatory transfer to the States of Rs. 1.20 lakh crore and allocation of Rs. 1.01 lakh crore as GST Compensation Cess against the amount so collected, as much 14.27 lakh crore is the budgeted expenditure over which the Central Government has really no control or discretion. This non-controllable expenditure amounts to as much as 51% of the budgeted expenditure.

Rest of the budgeted expenditure Rs. 13.59 lakh crore is what discretionary expenditure of the Central Government is.

Three broad categories of discretionary expenditure- Centrally Sponsored Schemes (CSS) Rs. 3.32 lakh crore, Major Subsidies Rs. 3.39 lakh crore and Capital expenditure Rs. 3.31 lakh crore, all together Rs. 10.02 lakh crore constitute bulk of the central government’s discretionary expenditure.

The remaining revenue expenditure of Rs. 3.57 lakh crore is for running more than 600 central sector schemes, making equity investment and other financial support to autonomous organisations of the Central Government.

These expenditures support all the major schemes of the Central Government other than the capital expenditure and major subsidies.

This pool of expenditures also fund numerous small schemes. There are as many as 235 schemes for which the provision of budget is less than Rs. 50 crore. Such schemes are unlikely to make any meaningful impact.

Large scale reforms are called for in central expenditure programme. I hope to bring out an analysis of which Central Government expenditure programme should be scrapped or deeply restructured and streamlined in a separate piece.

SUBHASH CHANDRA GARG 24/01/2020