Good riddance to spending curbs

Good riddance to spending curbs

Spending curbs on ministries are gone, at last. Better late than never. Ministries have been asked not to bunch spending in the last quarter. This is fine. But the government, which had budgeted to spend around Rs 30.4 lakh crore in 2020-21, should borrow more to sustain its own (read: unforeseen) expenditure and to fund the states’ planned expenditure out of devolutions from the Centre and GST compensation. As states account for around 65% of the total government expenditure, keeping their spending going is most important to sustain demand in the economy.

The Centre must on-lend its market borrowings to the states to bring down the interest outgo on total borrowing. This will enable states to prevent large cutbacks in capital expenditure.

Fiscal expansion is also unlikely to push up yields or inflation when private demand for investment finance is low. The focus should be on improving outcomes across the board. Invariably, ministries bunch spending in the last quarter to forestall a cut in their budget allocations in the next fiscal. Earlier, the Rangarajan Committee had recommended shifting to a multi-year time horizon, and basing budget outlays on detailed project reports that set milestones, final targets and funding needs at every stage. This makes eminent sense and the government should adopt these recommendations. Governance reforms to make the delivery of services efficient should go hand in hand.

This is the time to enlarge the divisible pool for states, by bringing petrofuels under GST and paring cesses and surcharges to the minimum. The Centre would do well to focus spending on its constitutionally assigned responsibilities, while not frittering away its own resources on state subjects, such as healthcare.