Despite elections, no real growth seen in FY14 Plan

Written by Subhash Narayan | New Delhi | Updated: Jan 14 2013, 06:47am hrs
The controls on spending, especially of the kind that does not require a policy sanction at the political level and is more amenable to administrative measures, are going to be tighter than previously thought. In what would help the cause of fiscal consolidation, the gross budgetary support (GBS) or the central governments support for the Plan spending of the Centre and the states for 2013-14 would see only a 5% increase over the budget estimate (BE) of the current year.

Since the actual GBS this year would turn out be significantly lower than the BE thanks to curbs already enforced, the GBS growth over the revised estimate to be unveiled in the forthcoming Budget would still be close to 25%. Over the BE, however, the real growth of GBS would be negative next fiscal given the high inflation.

The squeeze on GBS would imply that central ministries planning an expenditure binge next year keeping the 2014 general elections in mind are in for a major disappointment. Sources said finance minister P Chidambaram is unlikely to provide for any increase in outlay for centrally-sponsored schemes barring the governments flagship programmes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme, the mid-day meal scheme as he presents the Budget next month.

GBS or Plan expenditure, includes Budget outlay for the central Plan and budgetary support to state and union territory Plans. GBS used to account for roughly 80% of the Central Plan. Apart from GBS, the Plan includes spending by public sector enterprises, which is not included in the Budget.

North Block, sources said, has already told central ministries to prepare their 2013-14 budget keeping in mind only a 5% increase in the GBS. There is pressure on the government to cut expenditure wherever possible, the ministries have been told. If this proposal is accepted by the Planning Commission, the GBS would rise by a mere R26,000 crore to R5,47,000 crore from about R5,21,000 crore budgeted for 2012-13.

BE for GBS in the current fiscal was up 22% over the previous years. Of course, the proposed GBS increase of 5% for 2013-14 is not consonance with the 12th Plan projections for Plan expenditure (R35.69 lakh crore), up 125% over the R15.89 lakh crore in the 11th Plan.

The finance ministry while asking ministries to prepare their respective budgets keeping three scenarios of 5%, 10% and 15% increase in GBS has now decided to restrict the options and give only the option of 5% growth, said a government official.

The Planning Commission needs the finance ministrys nod for every item of expenditure under the Plan head. While the commission still wants higher support for next fiscal, the finance ministry is keen curb additional expenditure to keep its fiscal consolidation programme on track. Sources said a compromise could be worked out for a 10% increase, but the finance ministry doesnt seem to be in a mood to relent right now.

The ministry is under pressure to meet the fiscal deficit target of 5.3% of GDP for the current fiscal. It had announced a roadmap to bring the deficit level to 3% over next three years. The economic slowdown has affected governments tax collections and put pressure on the revenue position. Curbing expenditure is the best bet here. For the current fiscal, Plan expenditure is already expected to be kept 20% below budgeted levels.

With expenditure cuts of 20% expected this year, the GBS for 2013-14 would actually be higher by about 24% over the previous years revised estimate. So ministries should not have any reason to complain, said an official in the Planning Commission.

This fiscals expenditure management has already been slightly better than the previous years, with April-November expenditure at just 58% of the estimated budget size, compared with 60.5% during the same period last year.