Centre's relief measures push up revenue expenditure

The revenue expenditure of the government is steadily rising due to relief measures taken to fight the Covid-19 pandemic at a time when the Centre’s revenues are slumping.

A DH analysis of data available with the Controller General of Accounts shows that the Centre’s revenue expenditure has grown at more than thrice the rate (12.2% Y-o-Y) of capital expenditure (3.9% Y-o-Y) during the first four months of FY21.

The revenue expenditure in the April-July period stood at Rs 9.42 lakh crore, while the capital expenditure was Rs 1.12 lakh crore.

Revenue expenditure involves certain fixed payments such as interests, salaries, and pensions which need to be paid every month while capital expenditure is discretionary in nature and the government can decide to postpone the spending.

In the first four months of FY20 (previous year), the revenue expenditure had increased by just 7.9%, while the capital expenditure had shrunk by 3.4%.

“The government had to pay for relief (food distribution and other measures) to the farmers during the first four months owing to the adverse impact of the Covid-19 pandemic. This is the reason why the growth in revenue expenditure continues to be higher than capital expenditure,” said Sushant Hede, Associate Economist, CARE Ratings.

As a result of this rise, the total expenditure of the government has grown 11.3% Y-o-Y to Rs 10.54 lakh crore, compared with a 41.7% Y-o-Y decline in receipts — which stood at a mere Rs 2.23 lakh crore.

The receipts of the government have declined primarily due to a fall in economic activity: corporate tax collection has dropped by 39.2% Y-o-Y, income tax collection has fallen 29% Y-o-Y, CGST by 34% Y-o-Y, and customs duty by 54.1%.

“The stringent lockdown imposed by the government, the limited economic activity in April-May, and the gradual reopening subsequently have led to lower tax collections during these four months,” Hede said.

The government has moped up tax receipts worth Rs 2.03 lakh crore in April-July 2020, compared with Rs 3.39 lakh crore a year ago.

Of this (Rs 2.03 lakh crore), corporate tax made up 26% (Rs 53,724 crore), Income Tax made up 45% (Rs 91,244 crore), CGST made up 46% (Rs 92,949 crore) and customs made up 15% (Rs 23,747 crore).