With the RBI acknowledging that the impact of Covid has been worse than anticipated, the government has decided to suspend all new schemes 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 ministries that schemes which had already been approved in the current financial year would remain suspended till March 31 next year.
All ministries have been asked to submit a list of schemes that were given in-principle approval by the month-end. “Till then, no funds should be released nor budgetary provisions made for such schemes,” instructed the Finance Ministry in an Office Memorandum. The intention is to curtail expenditure to avoid further debt. Moody’s has already rung the alarm bells 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 — the PM Garib Kalyan and the Atmanirbhar Bharat Abhiyan or any other package that may be announced subsequently. “There is an unprecedented demand on public financial resources and a need to use resources prudently in accordance with emerging and changing priorities,” explained a Finance Ministry note.