Ministries risk cut in expenditure large expenses catch finmin eye

After alarms were raised by global rating agencies on India’s fiscal health, the finance ministry has started closer scrutiny of expenditure by government departments. Finance Secretary RS Gujral has written to some central ministries which saw a sudden spurt in expenditure at the end of September.

Government departments which did not incur any expenditure in the first six months face the risk of reduction in their Budget allocation when the finance ministry starts meetings on Revised Estimates later this month. To avoid a cut in their Budget Estimate, some ministries are hastily withdrawing funds.

“We are monitoring the expenditure very closely. Many departments tend to withdraw funds towards the second half of the year. The finance secretary (who is also expenditure secretary) has written to all such departments which made suddenly huge expenditure in September… If a department has not utilised the funds so far in the year, we may cut their allocation,” said a finance ministry official.

The finance ministry has told all the government departments that funds should be taken on utilization basis and it should not be merely shifting of the amount from one account to another.

The government’s focus on monitoring expenditure can be gauged from the fact that Finance Minister P Chidambaram has met financial advisors of various ministries twice in the last two months, while his predecessor had met them only once in a year. In the last meeting Chidambaram is learnt to have told the advisors that no wasteful expenditure would be tolerated and fresh demands should be avoided.

Unlike the usual practice of assessing expenditure of government departments once a year at the time of making Revised Estimates, the ministry is now keeping a close eye on their monthly expenditure. The finance minister is kept in the loop whenever a large expenditure is made.

Barring subsidies, the finance ministry is unlikely to entertain any demands in the second supplementary in the Winter Session. Subsidies are likely to exceed the Budget Estimate of 1.9% of GDP by a significant margin and the government is looking at other ways (curbing other expenditure and maximizing revenue collections) to keep its fiscal deficit close to the target of 5.1% of GDP. The finance minister has already admitted subsidies would be 2.4% of GDP. 

Officials said significant savings were expected under various social sector schemes of the government as their administrative ministries were not able to spend the funds.

The government has pegged its total expenditure at Rs 14.9 lakh crore in the current financial year, against Rs 12.9 lakh crore last year. During April-August, its expenditure stood at Rs 5.6 lakh crore, which is about 38% of the BE. On the other hand, fiscal deficit is already about 66% of the BE.

In May this year, the government had announced austerity measures to cut down its expenditure. Apart from a 10% cut in non-plan expenditure, it barred ministries from conducting conferences in five-star hotels, buying new vehicles or travelling abroad unless absolutely necessary. Also, a total ban was imposed on creation of new government posts. The measures, however, were more in the nature of sending a signal and might not result in huge savings.