Budget – Revenue & Expenditure Analysis (Part II)

Against total receipt of Rs 20.8 lakh crore, government is projected to spend nearly Rs 27.8 lakh crore in FY20. Other than interest payments, broad areas which account for maximum expenditure are Defence, Subsidies and rural & agriculture sector. These three heads, together, account for almost Rs 9 lakh crore or one-third of government’s total budget. Here is a look at the details of various government expenses.Defence services account for over Rs 3 lakh crore of total expenses, of which, over Rs 2 lakh crore is on revenue account and Rs 1 lakh crore on capital account. Defence establishment, especially the Army, is reportedly undertaking exercise to prune its budget and at the same time, increase combat to back-end workforce ratio. The exercise should help cut cost without compromising the country’s defence preparedness. Other than that, defence establishment would also receive Rs 1.1 lakh crore as payment towards pensioners, amount which has jumped significantly after the implementation of OROP scheme.

Expenditure towards agriculture and rural economy stands at substantial Rs 2.6 lakh crore. Ironically, less than Rs 200 crore of this goes towards capital creation. The outlay has risen sharply due to Rs 75,000 allocated towards the income support scheme announced for the first time in this budget. The other important item within this category is MGNREGA having fund allocation of Rs 60,000 crore. While MGNREGA is the flagship programme for rural job creation, there is another livelihood scheme, National rural livelihood mission, which is separately allocated Rs 8,000 crore. There are many such schemes running with similar objectives in different sectors which need to be scrutinised and merged for better monitoring and cost effective implementation. Governments would have cumulatively spent over Rs 6 lakh crore in MGNRGEA and it is time to evaluate the assets it has helped build and/or merge it with rural road/housing and other assets creating schemes. The need is even more so since almost half of the money is given as grant-in-aid and spent through state governments and therefore, prone to leakages/ inefficient utilization.

Other major expenditure items are Rs 20,000 crore towards rural roads and Rs 16,000 crore towards rural housing scheme. However, these schemes probably need to be clubbed with capital expenditure as they help create assets. Crop insurance and interest subsidy scheme, together, account for another Rs 32,000 crore of expenditure. An item missing in emphasis in expenditure towards irrigation which stands at just about Rs 3,000 crore; something that needs huge thrust to reduce the agrarian distress.

Government’s subsidy bill is projected to reach Rs 2.9 lakh crore including Rs 1.8 lakh crore towards food subsidy, Rs 75,000 crore towards fertilizers and Rs 35,000 crore towards LPG and kerosene subsidy. Food subsidy is projected to risen sharply from Rs 98,000 crore in FY18 on account of significant increase in minimum support price, coverage of all crops under the scheme and implementation of National Food security Act. While the subsidy is certain to raise eyebrows and looks unjustifiable, it is not exactly unusual and economics of food supplies is such that most of the countries in the world incur substantial expenditure on this count. A focused strategy to increase value addition through food processing industries and increasing share of exports can help reduce some of this expense. With regards to fuel subsidy, it may be noted that kerosene subsidy has come down significantly over the years whereas LPG has risen substantially from just Rs 13,000 crore in FY18 to almost Rs 30,000 crore in FY20 (projected) as a result of gradual reduction in use of kerosene for cooking and increase in coverage of LPG.

While most of the government expenditure is revenue in nature, government does spend a small part, projected at Rs 3.3 lakh crore out of the total budget of over Rs 27.8 lakh crore towards capital assets creation. Prominent sectors incurring capital expenses are Roads and Railways at Rs 72,000 crore and Rs 65,000 crore respectively. Other than the budgetary support, these sectors redeploy funds generated from their operations and also raise funds from the market to meet their capital expenditure. Total capital investment to be undertaken by Railways and Roads would be about Rs 1.6 lakh crore and Rs 1.4 lakh crore respectively. Capital investment also includes over Rs 1 lakh crore of investment in Defence services.

Among other sectors receiving substantial sum are Ministry of Home affairs receiving Rs 1.2 lakh crore (largely to meet the expenditure of maintaining Police force), human resources – Rs 94,000 crore, health ministry – Rs 60,000 crore, housing & urban affairs – Rs 48,000 crore and women & child development receiving nearly Rs 30,000 crore. Housing & urban affairs would be spending about Rs 20,000 crore towards capital investment largely going towards development of Metro Network.

Expenditure which deserves special mention is Rs 17,000 crore towards Atomic Energy program and about Rs 12,000 crore towards space research. The department would also be spending about Rs 7,500 crore generated from its own. A substantial part of this is on capital account. These are amounts being used by highly professional and efficient bodies and hence are generating substantial tangible as well as intangible returns.

(Image Source – Budget documents)

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