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. Finance Minister Pranab Mukherjee . PTI
“For the year 2012-13, every
ministry/department shall effect a mandatory 10% cut in non-Plan expenditure
excluding interest payments, repayment of debt, defense 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.
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 subsidies, 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 are
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 conditionally
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.
