Government to axe all new schemes to avoid running up more debt

Sandeep Dikshit

Tribune News Service

New Delhi, June 5

With the Reserve Bank of India acknowledging that the impact of COVID-19 had been worse than anticipated, the Union Government has decided to axe all new schemes in order to avoid being downgraded to junk status by international rating agencies for running up high levels of debt.

The Finance Ministry, on Friday, informed all Central Ministries that schemes, which have already been approved in the current financial year, will remain suspended till March 31, 2021.

All Ministries have been asked to submit a list of schemes that were given in-principle approval by the end of this month. Till then, no funds should be released nor budgetary provisions be made to such schemes, instructed the Finance Ministry in an Office Memorandum.

The intention is to save on expenditure in order not to incur more debt.

Also read: Govt ‘clear and unapologetic’ about privatisation of PSUs: Principal Economic Adviser

Moody’s has already rung the alarm bell by downgrading India to Baa2 — the lowest investment grade. Even this rating is generous since it is 30 percentage points above the median of Baa-range nations. A further downgrade will mean that India will have to borrow funds from abroad at higher interest rates.

The only exceptions to the no-new-scheme instructions are the PMO-helmed ones such as the Prime Minister Gareeb Kalyan Package and the Atmanirbhar Bharat Abhiyan package or any other package that may be announced subsequently.

“There is unprecedented demand on public financial resources and a need to use resources prudently in accordance with emerging and changing priorities,” explained the Finance Ministry note.

Meanwhile, the Centre’s Principal Economic Advisor Sanjeev Sanyal suggested that the Union Government is keeping its powder dry as it anticipates a prolonged period of slow economic growth.

“The Government is not following others in re-inflating the economy with massive spending because the post-COVID world would be very different. Why waste all ammo on a world that is dying?” he asked while speaking at an online dialogue organised by the All-India Management Association (AIMA) as part of its “LeaderSpeak” series.

At the dialogue with industrialists Sanjay Kirloskar, Harsh Pati Singhania, Sunil Kant Munjal, Sanjiv Mehta and Sudhir Jalan, Sanyal said it was useless to push demand during a lockdown.

“We are cognizant of the demand situation and we will use fiscal and monetary measures for demand where required,” he said.