Expenditure Secretary T V Somanathan
Expenditure Secretary T V SOMANATHAN tells Dilasha Seth and Indivjal Dhasmana that the Centre borrowing on behalf of states for the compensation gap caused by the goods and services tax (GST) has always been one of the propositions. He touches on various issues such as funds for universal vaccination programme, Stimulus 2.0, and capital expenditure (capex). Edited excerpts:
What changed three days after the GST Council meeting that made the Centre agree to borrow and lend to states?
Nothing has changed. The original paper distributed said that a special window would be arranged by the Centre in consultation with the Reserve Bank of India (RBI). There are multiple ways in which the window can be arranged. This is substantively the same. The Centre arranges back-to-back transfers. It is one of the variants of the special window. What happened after the GST Council meeting was that we got the go-ahead to start operationalising it.
Why can’t the Centre also borrow the additional 0.5 per cent of gross state domestic product, which is Rs 1.06 trillion?
There is an issue of principle. There is a legal obligation to pay the full amount regardless of its cost, but a part of that shortfall is not caused by GST. This shortfall would have occurred even if there was sales tax or value-added tax or the central excise system. The Centre accepts the legal obligation that the entire amount is payable. The entire compensation is payable. But it is payable through proceeds of the cess. Now, how do we manage the cash flow problem? We are going by the spirit of the legislation. Our cash flow obligation is a moral one. We are committed to meeting the moral obligation, which is lower than the legal one.
Did the RBI discourage the Centre from asking states to individually borrow?
No. That is factually incorrect. The debt manager for the Centre and states is the RBI. That’s when the RBI comes into the picture. We are still in talks with the RBI on ways to operationalise it back-to-back.
Is the Stimulus 2.0 provided by the Centre not convoluted since it forces government employees to spend three times his/her leave travel allowance (LTA)?
No, it is not. Had it not been made three times, you would have had a lower demand effect. This is not a pro-labour or pro-employee welfare measure for the staff. It is intended to increase consumer demand. Government staff can still avail of LTA. It doesn’t take away any of your rights to travel. Our numbers are based on a quarter of people taking it.
What are the chances of meeting the additional capex of Rs 25,000 crore over and above the Budget Estimates (BE) for 2020-21?
We are optimistic we will be able to meet it.
But there is close to a 40 per cent contraction in the second quarter (Q2)...
True. But the shrinkage is not very severe. And it is not severe when you compare the circumstances of the first few months in which no new activity happened. It’s not surprising that the pace of capex declined in Q2, but is picking up rapidly. It’s also connected to the health situation. In capex, if you notice, we didn’t say, across-the-board Rs 25,000 crore. There are certain aspects we identified. These are places where we are confident that they can spend or intend to spend. There is actually pressure now to pay faster in some of these capital heads. For instance, roads sector is doing very well. We have quite a few domestic defence contracts getting approval for capital work.
What about total expenditure, including revenue expenditure?
We will be much more than the BE because the expenditure is quite large. The food element is more than ~1 trillion. We’ll definitely spend much more.
What about the additional Covid-19 vaccine expenditure? When will that be accounted for?
There will be a lot of expenditure on vaccines, but I don’t think it is possible to estimate that with any precision for the current year. We also don’t know the timing of the roll-out. Estimating the amount in terms of budgetary outflow is difficult, but we have made an estimate of how much the commitment will be and we will fund it fully.
How much is the estimate for funding the Covid vaccine?
There are some numbers in the public domain. There is a global alliance for vaccination and immunisation. It says $3 per dose. There are a lot of variables. Whichever number you quote, we are comfortable with the proposition that budget
will not be a constraint in the universal vaccination programme. The Government of India can afford it.
Will the government fund it fully or for a section?
I did not say that the government will be funding it wholly. I said the cost of the universal vaccination programme planned by the health ministry will be adequately funded. We will ensure the vaccine outreach is not held up by budgetary constraints.
Does it mean the expenditure next year will see less growth than usual as the base will be high this year?
This year there will be two kinds of expenditure. The routine expenditure within some departments will be lower than BE because we are also re-prioritising. Next year, those which are purely one-time special expenses will disappear. Expenditure on vaccine will probably come next year.