Interview | Budget 2020

Govt. fund will catalyse investment in infrastructure, says Expenditure Secy Somanathan

Expenditure Secretary T.V. Somanathan.

Expenditure Secretary T.V. Somanathan.  

'The projections that we have given for the coming year are are our best case estimates.'

The government is striving to push spending into the most productive uses to spur the economy without becoming fiscally imprudent and has projected receipts and expenses in as realistic a manner as possible, Expenditure Secretary T.V. Somanathan said, detailing the Budget’s provision.

For the coming year, we're looking at expenditure to GDP ratio going up by nearly 0.33%. While this is significant, some analysts compare it to this year's performance, where you have an actual 0.43% actual fall in spending…

The projections that we have given for the coming year are are our best case estimates. It's neither the most optimistic case nor the most pessimistic case. It's our most probable case. We have actually tried to be as realistic as possible.

Expenditure estimates obviously have a link with revenue estimates. There is a 10% nominal growth assumption, which I think is eminently reasonable, and a 12% revenue growth is very likely in a normal year, if there are no structural changes like the corporate tax changes that were made in the middle of this year. So we have projected approximately 11%-plus expenditure growth, with capital expenditure growing by nearly twice that. The idea is to husband the available sources and push it into the most productive uses, use it for growth-inducing as much as possible.

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But all of this is done with a background of staying fiscally prudent, because we don't want a repeat of a cycle where you suddenly break all the barriers, then two years later, you have a crisis where you suddenly have to roll everything back. So we pushed expenditure to the limits that it can be pushed without being imprudent.


How do we push capex in particular?

By reprioritising and changing from low value add schemes to more of capital expenditure and even within those, (projects) with high-multiplier (effect). That's the direction we would like to go. These are tasks which take time to do and quite a lot of analysis. It's not something that can be done overnight or at the press of a button, but we intend to look at them very carefully.

Some sectors like infrastructure, we talked about a lot of spending in terms of the new projects. But the allocations seem very modest.

The national infrastructure pipeline that the FM unveiled on 31st December is ₹102 lakh crore - with the central government, States and the private sector expected to chip in. As far as the central sector projects are concerned — nuclear power, railways, highways — we have provided very reasonable provisions for those.

In addition, there is a provision under the Department of Economic Affairs which will create a fund to catalyse private investment in infrastructure. The amount is approximately ₹20,000 crore. It’s the government's seed contribution or catalyst which can also be augmented, if the offtake is good. The exact manner in which it will be used is being decided. It could be PPP, it could be others, but it's basically a funding mechanism that has been created.


When you look at some of the infrastructure projects, they will be viable with market borrowing and a little bit of government equity or a viability gap fund. It is the amount of money that is needed from the public exchequer to induce people to invest both equity and debt into the projects.

We heard a lot about new schemes in the Budget, but it also mentioned rationilising central sector schemes.

We are quite serious about doing that. We intend to look at them quite carefully, to see which are the schemes that may have outlived their use, schemes designed for yesterday, which are not relevant for tomorrow, which we can now reprioritise and use more productively for higher value-add.

With regard to the interim report of the Fifteenth Finance Commission, the one thing you have rejected is the Special grants to States. What is the thinking behind that?

There has never previously been a special grant. So it is something new and we need more time to consider its logic, its implications. The Commission has chosen a certain formula. Whatever that formula has implied, has been provided for. They've assessed revenue deficit grants, that's also been provided for. Beyond that, there are a couple of new things. The report was received shortly before the Budget preparation. We just need more time to look at the implications and to discuss them with the Commission.

The Finance Commission is also likely to propose measurable performance-based incentives for States for some grants, and you have been going down that road of linking performance to allocations for some centrally sponsored schemes as well. Is that a specific strategy?

There is a move towards incentivising those states which are better at performing towards the objectives of a scheme. So if a state does well, it should look to get something more for having done well. And if some state is not progressing, then it is perhaps desirable in the interest of the overall attainment of the mission to redirect money towards others. In many cases, it does work well. Smart cities for instance, if a state government is not interested, you cannot get a smart city built. If a state wants to use the money, then they apply.


There could be exceptions where some universal minimum needs are involved. So we don't do that for food security. But certain kinds of developmental projects don't succeed without deep state level or local level commitment. Evaluation studies have shown that you can push, but if there's no pull from the other side, it's not a good use of public money. It's better to direct that money to something else. Otherwise, you announce a scheme and then it takes five years for someone to decide where in the State that should go, because they've not asked for it. And then the money gets locked up and can’t be used for anything else. There are many States that are actually good at using centrally sponsored schemes. And often, they don't get the opportunity of getting more, even though they've done well.

This year, you have given strict instructions to ministries that they should avoid the usual bunching up that happens in the last two months. So is there some change in the spending plan?

No. The revised estimates for this year are explicitly and avowedly lower than the budget estimates for this year. But there is no further cut from the revised estimates, except that we have asked Ministries to stick to the quarterly pattern of expenditure, stick to 25% in the last quarter. Any exceptions to that will require the authorisation of the expenditure department. Otherwise, there tends to be a lot of low value spending in the last quarter, because otherwise it lapses. These instructions are intended to ensure that does not happen. Because we are tight, and we want the spending to be productive. Wherever there is a valid case to go beyond that 25% on something that is productive, we will look at this, but they'll have to come to Expenditure department. It's not a right.

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Printable version | Feb 22, 2020 7:10:42 PM |

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