New Delhi: Under pressure to announce measures to rein in India’s widening fiscal deficit, the government announced a string of austerity measures on Thursday aimed at controlling unproductive expenditure.
These include a 10% cut in non-Plan expenditure for the current fiscal across all ministries, a restriction on official foreign travel, a ban on creation of new posts, conducting conferences and seminars in five-star hotels, and the purchase of vehicles. The austerity measures will come into force with immediate effect.
“For the year 2012-13, every ministry/department shall effect a mandatory 10% cut in non-Plan expenditure excluding interest payments, repayment of debt, defence capital, salaries, pension and the Finance Commission grants to the states,” according to a statement from the finance ministry, signed by expenditure secretary Sumit Bose.
Finance Minister Pranab Mukherjee . PTI
India’s non-Plan expenditure for 2012-13 is estimated at around Rs 9.7 trillion. A back-of-the-envelope calculation shows the government may be able to save about Rs 4,500 crore through this measure. It is a small step, said N.R. Bhanumurthy, professor, National Institute of Public Finance and Policy. “There are many more steps required to control the fiscal deficit,” he said. “Reducing unwanted subisidies, especially food and fuel, which are a big component of non-Plan expenditure, is important to control fiscal deficit. The government has managed to control subsidies to some extent with the hike in petrol prices. But it will be challenging for the government to increase diesel prices.”
Separate data released by the Controller General of Accounts showed India’s fiscal deficit narrowed to 5.76% of gross domestic product (GDP) in the year ended 31 March from a revised estimate of 5.9%.
The government wants to limit its fiscal deficit to 5.1% of GDP in the current fiscal by controlling subsidies to less than 2% of GDP.
The new austerity measures discourage organizing conferences, seminars and workshops except essential ones. It puts a total ban on holding meetings and conferences at five-star hotels. There will also be a ban on creation of Plan and non-Plan posts. No fresh financial commitments should be made on items that are not provided for in the budget as approved by Parliament.
It has been made the responsibility of the secretaries of the department and ministries to ensure that foreign travel is restricted to the most necessary and unavoidable official engagements. Proposals for participation in study tours, workshops, seminars or presentation of papers abroad at government cost will now be rejected except those that are fully funded by the sponsoring agencies.
The government will also not release funds to any entity, including state governments, that have defaulted in furnishing utilization certificates for grants-in-aid. Union government ministries will also not transfer funds under any Plan schemes in relaxation of conditionalities such as matching funding attached to such transfers.
Earlier this month, finance minister Pranab Mukherjee, while responding to a debate in the Rajya Sabha on the Finance Bill, had hinted at austerity measures to manage the burgeoning fiscal deficit.
Mukherjee had announced in Parliament that the government would resort to “unpopular” austerity measures to deal with fiscal problems. “I am going to take a little bit of unpopular steps. I am going to issue some austerity measures,” Mukherjee had said.