Even though the Centre is regulating non-subsidy revenue expenditures in its bid to keep the fiscal deficit within the target 6.4% of GDP in FY23, state governments and other agencies implementing various schemes may not feel a severe funds squeeze.

This is because the Centre has resorted to certain means to ensure funds are transferred to the implementing agencies, even as budget outflows are regulated. For instance, it has recently retrieved about Rs 40,000 crore lying with state treasuries for the last 2-3 years and devolved these funds to agencies implementing assorted Centrally Sponsored Schemes. In effect, the Centre has made savings of a similar amount from the current financial year’s allocation for these schemes.

Similarly, the Centre will also make some savings on the Central Sector Schemes as it has asked the autonomous bodies/implementing bodies to either use or return the unutilised funds lying with them as on March 31, 2022, before seeking fresh funds from this year’s budget, officials said.

In both these categories of schemes, the Centre’s diktat to return or spend the unspent balances accumulated over the years will generate substantial savings from this year’s budget allocation. These savings will be used to bridge the budget gap this year as it has announced over Rs 2.4 trillion additional spending on food, fertiliser and fuel subsidies (including Wednesday’s Cabinet decision to extend free ration scheme to December end), officials said. Besides this, some Rs 20,000 crore may be provided additionally for LPG subsidy.

Of the total budget size of Rs 39.4 trillion for FY23, the Centre has allocated Rs 4.4 trillion for Centrally Sponsored Schemes and Rs 11.81 trillion for Central Sector Schemes. The revenue expenditure budget for FY23 is Rs 31.9 trillion.

The Centre has mandated that before availing themselves of the Rs 1 trillion interest-free 50-year capex loan, states will have to spend the unused funds under centrally sponsored schemes and have to fully integrate their treasuries with the Centre’s Public Financial Management System.

This money (meant for centrally sponsored schemes) was lying with state treasuries and probably being used for other purposes instead of transferring to the implementing agencies. States were given a July 20 deadline, which was later extended to September 30 to transfer the funds to implementing agencies or return to the Centre,” an official said. “Around Rs 40,000 crore has moved from state treasuries to implementing agencies, still there is some money left with states which they have to either transfer to agencies or return to the Centre.”

In keeping with the focus on capex, the Centre invested Rs 2.09 trillion in April-July of the current fiscal, up 62% on year. A senior official told FE recently the capex target of Rs 7.5 trillion will be achieved or exceeded in FY23.

About a 14?cline in revenue expenditure, led to about a 2% on-year dip in total expenditure in July 2022. In the April-July period of the current fiscal, revenue spending rose by 5% on the year (which did not capture the idle funds being spent now in schemes). The revenue spending in the October-December quarter is seen accelerating as the government will seek Parliament’s nod to spend the bulk of the additional subsidy expenditure of over Rs 2 trillion announced earlier this year.

The markets saw a shortage of liquidity for a couple of days last week, leading to speculation that the government has slowed down spending. State Bank of India chief economist Soumya Kanti Ghosh said on Monday that the government cash balances with the RBI could be as high as Rs 4 trillion, following the outflows from the system on account of advance taxes and GST. The Centre’s cash balance refers to its fiscal income from tax and non-tax sources from which current expenditures are met.

“Net tax revenues are growing by 26% on the year and the government borrowings are going on as per the calendar, but revenue expenditure growth is muted. It’s natural that cash balances go up,” said India Ratings chief economist DK Pant.