₹20,000-crore bank recap, ₹40,000 cr more for MNREGA top Govt’s additional spending plan

Depite strained revenues, the government is not going to skimp on spending, and towards this end today proposed infusing ₹20,000 crore into public sector banks and allocating a further ₹40,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Programme.

Bank recapitalisation will not entail any fresh expenditure while the allocation for the rural employment guarantee scheme, as part of Atmanirbhar Bharat, will be a part of the Government’s demand for fresh spending of ₹1.67-lakh-crore. in FY21

According to the first batch of Supplementary Demands for Grants, tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha, “Approval of the Parliament is sought to authorise gross additional expenditure of ₹2,35,852.87 crore. Of this, the proposals involving net cash outgo aggregate to ₹ 1,66,983.91 crore and gross additional expenditure, matched by savings of the Ministries/Departments or by enhanced receipts/recoveries aggregates to ₹ 68,868.33 crore.”

Net cash outgo means fresh mobilisation of resources either through borrowings or imposition of a new tax or cess. The government has already decided to borrow ₹4.2-lakh crore more than that proposed in Budget 2020-21.

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The Finance Ministry sought ₹20,000 crore for recapitalisation of public sector banks through issue of Government securities. “After taking into account the additional receipts on issue of securities to the public sector banks, this will not entail cash outgo,” the Ministry clarified.

With this infusion, banks will have higher capital adequacy that will help them expand their business and mobilise resources. The Covid pandemic's impact is likely to push up the gross NPAs (non-performing assets) of the banking system to at least 12.5 per cent by March 2021 from 8.5 per cent in March 2020, according to a RBI report.

More rural spending

The Rural Development Ministry will get the lion’s share of the additional expenditure, accounting for over 44 per cent of total net cash outgo. This includes more allocation for the Mahatma Gandhi National Rural Employment Guarantee Programme, the Direct Benefit Transfer to Pradhan Mantri Jan Dhan Yojna Women Accounts Holders, and the Indira Gandhi National Old Age Pension plan under the National Social Assistance Programme.

The government expects the ₹40,000-crore increased MGNREGA allocation to provide an employment boost. This will take the total expenditure to over ₹ 1-lakh crore during 2020-21. It will generate nearly 300 crore person days in total. The government aims to address the demand for more work, including by returning migrant workers.

To give relief to States going through resources crunch, the Finance Ministry has proposed an additional allocation of over ₹46,000 crore as Post Devolution Revenue Deficit Grant and Grants-in-aid General for the States Disaster Response Fund, per the accepted recommendations of the Fifteenth Finance Commission.

Further, an expenditure of ₹10,000 crore has been proposed towards food subsidy as part of the Decentralized Procurement Scheme under the National Food Security Act.

₹65,561-crore health plan

Even as the government petitioned Parliament for additional spending, Health Minister Harsh Vardhan announced that a Pradhan Mantri Atmanirbhar Swasth Bharat Yojana will be launched with an allocation of ₹65,561 crore. It aims to proactively identify gaps in dealing with the challenges posed by Covid-like pandemics, epidemics and disasters, It will cover investments in research, healthcare and public health infrastructure with particular focus on pandemic management.

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