That Magic Figure Of 10 Per Cent

Come September every year and the government issues a circular, essentially asking the Union ministries to cut their expenditure. This has become a routine annual feature, irrespective of which political party is in power at the Centre.

The routine bit has been carried so far that even the extent of the expenditure cut contained in this directive does not change. All Union ministries are asked to cut their non-salary, non-developmental expenditure by 10 per cent. No one really knows why the cut has to be 10 per cent, not 12.5 per cent or 15 per cent.

It is almost like that magic figure of 40 per cent foreign equity in a company, which till recently subjected a corporate entity to the jurisdiction of the draconian Foreign Exchange Regulation Act (FERA). No one could explain why the foreign equity had to be more than 40 per cent, not 26 per cent or 51 per cent.

Similarly, the 10 per cent expenditure cut over the years has acquired a magical ring around it. No one wants to question it. If the primary objective of the circular is to keep expenditure management within the budget targets, the extent of the cut should surely be determined by such compulsions and should, therefore, vary depending on specific circumstances each year. The routine 10 per cent cut does not seem to suggest that such considerations have played any role.

The circular has become so much of a routine that financial advisers in different central ministries have started treating it with scant regard. Before sending their expenditure estimates to the finance ministry, these advisers often inflate their requirements by at least 10 per cent.

As a result, when the 10 per cent expenditure cut is imposed by the middle of September, they don