The finance ministry has imposed spending caps of 15-20 per cent on some ministries and departments in the April-June quarter of the current financial year.

According to an office memorandum issued by the department of economic affairs (DEA), it has been decided to regulate the expenditure of the government and fix quarterly and monthly expenditure plans for certain demands and appropriation raised by ministries. This would keep a tab on expenditure and ensure that spending is done only on the most essential items in the first quarter.

“Keeping in view the present situation arising out of Covid-19 and the consequential lockdown, it is expected

that the cash position of the government may be stressed in Q1 (April to June, 2020) of 2020-21. Considering this, it is essential

to regulate government expenditure and to fix the quarterly/monthly expenditure plan of specific ministries/departments,” the DEA memorandum read.

The move comes a day after Congress working president Sonia Gandhi, in a letter to the Prime Minister Narendra Modi, suggested a 30 per cent expenditure cut for the current fiscal.

“This 30 per cent (that is, around Rs 2.5 lakh crore per year) can then be allocated towards establishing an economic safety net for migrant workers, labourers, farmers, MSMEs and those in the unorganised sector,” she wrote.

“A ratings downgrade along with a loss of investor confidence could lead to a plummeting exchange rate and a dramatic increase in the long-term interest rates in this environment, and a substantial losses for our financial institutions,” former RBI governor Raghuram Rajan wrote while suggesting cutbacks or delays in the less important expenditures and focusing on immediate needs.

The demands of the ministries have been categorised into two segments — one set was asked to restrict expenditure to 20 per cent of the budget estimate for 2020-21 in the first quarter, while the other set has been requested to restrict spending to 15 per cent of the estimates.

State funds

The finance ministry has allowed all states to borrow a cumulative Rs 3.20 lakh crore from the market between April and December in a bid to meet the expenses in dealing with the Covid-19 pandemic.

The finance ministry has also released about Rs 34,000 crore in two phases to states as compensation for their revenue loss in the goods and services tax (GST) regime.