Ministries risk cut in expenditure

After global rating agencies expressed concern on India’s fiscal health, the finance ministry has started scrutinising the expenditure of various departments. Finance Secretary R S Gujral has written to a few central ministries that saw a sudden spurt in expenditure at the end of September.

Government departments that did not incur any expenditure in the first six months face the risk of a cut in Budget allocation when the finance ministry holds meetings on revised estimates later this month. To avoid a cut in the Budget estimate, a few 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 (also the expenditure secretary) has written to all departments that suddenly recorded huge expenditures in September…If a department has not utilised funds so far this year, we may cut their allocation,” said a finance ministry official. The ministry has informed all government departments funds should be taken on the basis of utilisation, not merely shifted from one account to another.

 

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

Deviating from the practice of assessing expenditure of government departments once a year (while preparing revised estimates), the ministry is now keeping a close watch on their monthly expenditure; in case of any large expenditure, the finance minister is kept in the loop.

Barring subsidies, the finance ministry is unlikely to entertain any demand in the second supplementary in the winter session of Parliament. Subsidies are likely to exceed the Budget Estimate of 1.9 per cent of gross domestic product (GDP) by a significant margin and the government is considering other ways (curbing other expenditure and maximising revenue collections) to ensure the fiscal deficit remains close to the targeted 5.1 per cent of GDP. Chidambaram has already admitted subsidies would stand at 2.4 per cent of GDP.

Officials said significant savings were expected under the government’s social sector schemes, as their administrative ministries were unable to spend the funds.

For this financial year, the government has pegged total expenditure at Rs 14.9 lakh crore, against Rs 12.9 lakh crore last year.

For the April-August period, its expenditure stood at Rs 5.6 lakh crore, about 38 per cent of the Budget Estimate. The fiscal deficit already stands at about 66 per cent of the Budget Estimate.

In May, the government had announced austerity measures to cut expenditure. Apart from announcing a 10 per cent cut in non-Plan expenditure, it had barred ministries from holding conferences in five-star hotels, buying new vehicles or travelling abroad, unless when absolutely necessary. Also, a ban was imposed on creating new government posts. However, the measures were aimed more at sending a signal and, therefore, might not result in substantial savings.