New Delhi: India will aim at scrapping irrelevant government schemes and reduce subsidies in the next fiscal year, the finance ministry said, as it grapples to keep a lid on spending and rein in the fiscal deficit.

The government’s stimulus spending to revive a slowing economy has strained its finances and could take the fiscal deficit to a 16-year high of 6.8% of gross domestic product (GDP) in 2009-10, to be funded by a record Rs4.51 trillion market borrowing.

Reducing deficit: Finance Minister Pranab Mukherjee. Prashanth Vishwanathan / Bloomberg

In a budget circular for 2010-11, the finance ministry asked all ministries and departments to “prioritize" government aided schemes and activities.

“Departments should ensure that all schemes that have been discontinued, do not find mention in RE (revised estimate of the Budget) for 2009-10," it said. “Similarly schemes that are not to continue beyond the year 2009-10 should not be included for BE (budget estimate) 2010-11."

It also said the ministries need to follow instructions on bringing down subsidies through improvement in operational efficiency and better targeting.

Ministries also need to give details of government guarantees on repayment of loans, tax revenues shown on books but not realized, and non-tax revenues that are yet to be collected.

“These kind of measures will possibly see some kind of decline in the fiscal deficit," said Jyotinder Kaur, an economist at HDFC Bank.

But it may not be enough to solve the problem of high fiscal deficit entirely, she added.

The fiscal deficit in the year ended March 2009 stood at 6.2% of GDP. In July, the government said it would aim to bring down the fiscal deficit to 5.5% of GDP in 2010-11 and further to 4% in 2011-12.