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PranabDa’s Post Budget ‘Gift’ Which Not Many Account For

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The Government of India usually puts in three Supplementary Demands for Grants with Parliament. Supplementary Demands essentially seek permission from the House to spend more than what was provisioned for in the Union Budget earlier in the year.


The first two Grants are during the course of the year, mostly in August and November. The third comes after the Union Budget speech is presented and marks in some way the culmination of the year’s accounting exercise. This year’s came on 19 March, three days after the Union Budget 2012 was presented on March 16.


The Union Budget exercise draws much attention from one and all. For the last few years, most experts, including economists, have focussed on the Budget Deficit and asked how the Government was going to balance its books, particularly with burgeoning subsidies and interest costs on debt.


The answer to those questions is not so important here as the composition of the 3rd Supplementary Grant for 2011-12, a whopper compared to the other two.


While all the figures eventually add up, the fact that the `uncomfortable’ numbers do not appear in the primary balance sheet which comes under intense scrutiny is something to be aware of, says IndiaSpend’s Dhritiman Gupta.


Surprising Additional Bills


As we mentioned earlier, the Finance Ministry put in a 3rdSupplementary Demand for Grants for 2011-12 on March 19, 2012. The 3rd batch includes 78 Grants and 3 Appropriations.


They range from the big heads like oil subsidies to for instance, Rs 100 crore for providing aid to Maldives for Standby Credit Facility and Rs 8.65 crore of unpaid travel bills for various Cabinet Ministers.


Morever, for reasons, which are not entirely clear (or understood) by us, all the Grants, including the 3rd, contain demands for funds to pay salaries in Government bodies like the Council for Scientific & Industrial Research, Defence services, Coast Guard, Silk Board and the Central Bureau of Investigation.


While some of the salaries are actually arrears of various kinds, it’s not apparent why this would land at the end of the year. Incidentally, both houses of Parliament, the Lok Sabha and the Rajya Sabha have claimed approximately Rs 44 crore (Rs 11 crore & Rs 33 crore) for increased salaries!


Let’s look at a few interesting heads.


Heads Ministry/Department Expenditure (in Rs cr)
Grants -in -aid  under “ Commemoration of Tercentenary of Guru ta Gaddi” Ministry of Culture 20
Aid to Maldives for Standby Credit Facility Ministry of External Affairs 100
Foreign Travel Expenses and maintenance of aircraft for VVIP travel Ministry of Home Affairs 190
Revival Package for Handloom Sector Ministry of Textiles 200
Expenditure on Salaries and Pensions Department of Posts 240
 Expenditure on salaries, repairs, anti-piracy and coastal security operations Defence Services Navy 238
To CBI for salaries and home travel allowance, Grants in aid to IIPA Ministry of Personnel, Public Grievances and Pensions 10
To Mars Orbiter Mission towards (a) procurementof machinery and equipment (Rs 1 cr), and(b) other capital expenditure (Rs 9 cr) Ministry of Space 10

Source: 3rd Supplementary Demand For Grants


Be that as it may, the total figure, for which Parliament approval has been sought: a gross additional expenditure figure of Rs 4,30,229 crore.


The first two Supplementary Demand had authorised expenditures to the tune of Rs 97, 904 crore, which included a Rs 30,000 crores compensation to Oil Marketing Companies (OMC) for their under-recoveries, or subsidies paid out on fuel. IndiaSpend had earlier reported in some detail on the two Grants.


The 3rd Supplementary Demand for Grants envisages an additional expenditure, which is more than 4 times the authorised amount under the first two Grants combined. Let’s look deeper.


  Plan Expenditure Non-Plan Expenditure Total
GRAND TOTAL 8,692 4,21,536 4,30,228
Net Cash Outgo 441 42,163 42,605
Technical Supplementary 8,249 3,79,372 3,87,621

(Figures in Rs Crore)


A net cash outgo of Rs 42,605 crore and a Technical Supplementary of Rs 3,87,621 crore. The major heads on which net cash outgo took place:


MAJOR HEADS Ministry/ Department Non- Plan Expenditure
Subsidy on Fertilisers Department of Fertilisers 7,201
Subsidy on Food Department of Food and Public Distribution 9,858
Appropriation- Interest Payments Ministry of Finance 7,631
Compensation to OMC Ministry of Petroleum and Natural Gas 14,838

(Figures in Rs crore)


As can be seen subsidies on fertiliser and food, and compensation to OMC’s were huge.


The major heads with respect to Technical Supplementary are:


MAJOR HEADS Ministry/Department Plan Expenditure Non-Plan Expenditure
Additional Expenditure on Salaries etc. Ministry of Defence 3,059
Subscribing towards share capital of NABARD, recapitalisation of PSU Banks Ministry of Finance 6,497
Appropriation-Interest Payments Ministry of Finance 4,272
Appropriation-Repayment of Debt Ministry of Finance 3,69,496

(Figures in Rs crore)


If we leave the Appropriation-Debt Repayment head out of our calculations, given that they are an inevitable part of expenditure over the course of the year, the government raked up additional expenses of Rs 60,732 crore.


Add to this the fund the centre raised through the first two Grants and we reach Rs 1,58,636 crore. An additional Rs 3,059 crore given to the Ministry of Defence was on account of salaries, works, and ex-servicemen contributory health scheme, Rashtriya Rifles etc.


As far as Appropriation- Interest Payment is concerned, the government notched up an additional net cash outgo of Rs 7,631 crore and provided a further Rs 4,272 crore in the Technical Supplementary; a total of Rs 11,903 crore. Of this, expenditure on interest payments on market loans amounts to Rs. 6,323 crore.


Subsidies A Major Portion of Grants


Now let us consider subsidies.  3rd Supplementary Demand for Grants proposes a compensation of Rs 14,838 crore to OMC’s for their under-recoveries and  subsidies of Rs.7,201 crore and Rs 9,858 crore on  fertilisers and food  respectively.


If we were to combine all three Supplementary Grants, the additional expenditure on oil, fertilisers and food subsidies amount to Rs 44,838 crore, Rs 20,980 crore and Rs 12,155crore respectively – a total of Rs 77,973 crore; or 49.1% of the additional expenditure under Supplementary Grants excluding Appropriation-Repayment of Debt.


If the government can cut down on the additional subsidies it ended up paying this year then it will have a lot more breathing space.


Amount of Subsidies Unlikely To Decrease


But that is unlikely to happen. Even though the fertiliser subsidy is expected to go down this year due to the passage of the inflationary period, food and oil subsidies are likely to remain high.


In Budget 2011-12, the government had set aside Rs 20,000 crore for compensation to OMC. It ended up paying Rs 44,838crore more. Budget 2012-12 has set aside Rs 40,000 under the same head. The general consensus is this figure could be higher.


With the National Food Security Bill imminent, the food subsidies will increase.  In the Union Budget 2012-13 the amount set aside for subsidies on food is Rs. 75,000 crore. However, according to Food and Consumer Affairs minister Mr KV Thomas implementation of the bill would require aRs.1.12 lakh crore in 2012-13.Already we are staring at an additional bill of Rs. 37, 000 crore , which in all probability would come in the Supplementary Demand for Grants over the next 12 months.

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