The Ministry of Finance has asked central ministries and departments to release funds under centrally sponsored schemes on a “need basis”, and not as per entitlements of states, The Indian Express reported on Thursday. The directive was issued in view of the fact that the Centre has been able to mobilise much lower revenue due to the nationwide lockdown to fight the coronavirus.

“In order to ensure availability of adequate funds to implement the schemes and projects, it is proposed that ministries and departments collect the information for each scheme or project in the manner in which enables them to release funds only on need basis,” Expenditure Secretary TV Somanathan said in his letter to the ministries, sent on May 4.

Last month, the Ministry of Finance had asked states to limit their spending during the April to June 2020 quarter.

Somanathan said in his letter that the restrictions imposed on the movement of goods, services, and manpower, both by the Union Ministry of Home Affairs and the states, have had a major impact on economic activities in the country. “For current year, therefore, we are faced with the twin challenges of not only substantially lower revenue mobilization, but also higher expenditure demands on the exchequer to accommodate the extra funding requirements of the relief and incentives packages,” the expenditure secretary said.

Somanathan added that the government will soon announce a new relief package to complement the Rs 1.7 lakh crore package it unveiled in March, just after the lockdown began. He also asked ministries to observe “greater financial discipline” and control over the expenditure on various schemes during the 2020-’21 financial year.

“The information as regards treasury operations of the state show that substantial amount of surplus cash available with several of states is parked in Treasury Bills,” he complained. “This means that, while on the one hand, the Union pays interest on the borrowings, which are released to states, on the other, for lack of utilization, states park these funds in Treasury Bills earning interest.”

The lockdown is expected to end on May 17. The Centre has allowed certain non-essential industries to operate and goods to be sold in areas marked as “green” and “orange” zones in the country, in an effort to boost its revenue and kick start the stalled economy.

However, some states, such as Maharashtra, have frozen all development spending, attempting to retain sparse funds available, for fighting the Covid-19 pandemic.

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