The government links the release of funds to the use

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The Center has introduced a new expenditure management system, under which funds will be released from the Consolidated Fund of India (CFI) directly to the implementing agencies’ bank accounts ‘just in time’ for use. The scheme, which initially covered all central government-sponsored schemes and self-governing bodies, has now been extended to expenditure channeled through central sector schemes as well, a move which will result in significant budgetary savings.

The advantage to the Centre’s finances of this move stems from the fact that expenditures would only be budgeted when the funds are actually spent in the real economy. Under the previous system, significant funds floated in public accounts other than the CFI, including state treasuries, even though expenditure had been justified.

Thanks to the calibrated release of funds, buoyant tax revenues and tax expenditure rationalization measures, the Center is unlikely to increase its gross market borrowing in FY23 from the level budgeted to finance the budget deficit. This is despite significant additional subsidy spending commitments and the loss of revenue from the automotive fuel tax cuts announced in May.

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The Center is budgeted to spend Rs 11.8 trillion through central sector schemes and a further Rs 4.43 trillion in Center sponsored schemes in FY23. The budget estimate for expenditure total is 39.4 trillion rupees for FY23.

The Center recently estimated an additional expenditure of Rs 2 trillion over the forecast budget for fertilizer, food and cooking gas subsidies in FY23. While around Rs 1.3 trillion additional net tax revenue (after decentralization) is expected, an additional Rs 30,000-40,000 crore could come from windfall taxes on petroleum products, leaving the deficit beyond the budgeted level at a manageable Rs 30,000 crore . Here, just-in-time release of funds will come in handy.

The Union Government had announced a plan to borrow Rs 8.45 trillion from the market through dated securities in the first half of FY23. It sets the gross borrowings from the market for the fiscal year 23 via titles dated at 14.31 trillion rupees, against the budgeted 14.95 trillion rupees, citing a change program conducted on January 28. The second half borrowing schedule is expected to be announced by the end of September.

“We don’t think there is a need for additional borrowing this year. However, we will strive to rationalize revenue spending at the time of the revised estimate as grants will increase,” an official said.

With the establishment of the Central Nodal Agency (CNA) for central sector schemes, the Single Nodal Agency (SNA) for centrally sponsored schemes and the Treasury Single Account (CUT) for autonomous bodies , the Center will be able to track the flow of funds to the end users.

“Funding releases in the first quarter of this fiscal year could have been higher if we hadn’t implemented the program. Now we clearly know how many funds are with an implementing agency at any given time. The next installment cannot be reserved until the previous versions have been used,” the official said.

Although it maintained the pace of capital spending, the Center moderated revenue spending in the latter part of the first quarter of FY23, with overall spending growth slowing to 23.7% year-over-year in May to 5.4% in June.

Lower fund floating will help the Center calibrate borrowing and is expected to save almost Rs 10,000 crore a year in interest charges, according to a source.

The Center had planned to limit revenue expenditure to Rs 31.94 trillion in FY23, down 0.2% from actual expenditure of Rs 32.01 trillion in FY 22. He intended to bring the budget deficit under control to 6.4% of GDP from 6.7% in the previous fiscal year. However, the budget calculations went haywire after the war in Ukraine caused massive disruptions in global supply chains, leading to a spike in international commodity prices. This, in turn, forced the government to increase the fertilizer subsidy from Rs 1.05 trillion in BEFY23 to Rs 2.15 trillion (it could be even higher at Rs 2.25 trillion), in addition additional expenditure of Rs 80,000 crore due to the extension of the six-month free ration scheme until September.

The reduction in excise duty on fuel in May to control inflation could lead to a loss of about Rs 85,000 crore in excise revenue in FY23 which will put additional pressure on the government record.

“However, a large part of this sum would be absorbed by higher than expected non-indirect taxes, as well as the exceptional tax on domestic production of crude oil and export duties on petroleum products, limiting the extent of the overshooting the government’s fiscal deficit in FY23 against budget estimates at Rs 30,000-80,000 crore,” said chief economist at ratings agency Icra, Aditi Nayar.

“Unless the free food grain program (Pradhan Mantri Garib Kalyan Ann Yojana) is extended beyond September 2022, we do not expect the fiscal deficit to exceed 6.4% of GDP on a GDP basis. face value of $272.1 trillion,” she added.

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