Finmin order to curb Q4 spending binge to aid in battle against deficit

Written by Himani Kaushik | New Delhi | Updated: Jan 10 2013, 11:46am hrs
With revenue streams lagging the Budget target, the finance ministry has imposed tighter curbs on spending especially Plan expenditure by central ministries in its bid to meet the revised fiscal deficit target of 5.3% of the gross domestic product. Sources said all ministries and departments have been asked to restrict their January-March spending to under 30% of the Budget estimate for the full year, reducing bunching of expenditure in the fourth quarter. 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. Officials expect these measures to save R40,000-50,000 crore.

In November, the ministry had issued a circular that funds under grants-in-aid will not be released unless the state/organisation produces utilisation certificates. On the non-Plan side (where the scope for control is far more limited as the head includes salaries, interest payments, routine unavoidable expenses and subsidies) too, the expenditure department has informally asked ministries to cut expenses wherever they can. In May, the department had mandated a 10% cut in non-Plan spending. The Kelkar committee had proposed savings of R20,000 crore on the expenditure front.

The aim is to save as much as possible. Given the Plan spending budget of R5,21,025 crore, even 8-10% savings will be substantial, said an official. The budgeted growth in Plan expenditure was 22.1%. During April-November, spending on this head grew just about 10%. This partly explains why the April-November fiscal deficit was 80.4% of the Budget estimate, slightly better than 85.6% during the same period a year earlier. Slow subsidy release is another factor.

Net tax receipts have grown a mere 15% during April-November, less than the 20% annual growth projected in the Budget.

Another official said the finance ministry has asked all government departments to defer big-ticket spending till next year. It is also scrutinising social sector spending by the ministries of health and family welfare, human resource development and urban development.

The official quoted above said: Schemes like JNNURM will have some savings because many of their projects are stuck due to land- and feasibility-related issues.

With tax revenues under stress, the government was banking on the proceeds from the auction of 2G spectrum and select disinvestments. But neither may yield revenues as expected. The first auction in November raised less than a quarter of the targeted Rs 40,000 crore and a second auction planned before March is not expected to raise much either. Disinvestments are also behind schedule, raising Rs 6,900 crore or just 23% of the budgeted amount. Some analysts estimate the revenue shortfall at Rs 50,000-55,000 crore, which the government could bridge through corresponding expenditure cuts.

Yes, it is a challenge. But as the finance minister said, everyone will have to bear the pain for fiscal consolidation, said another official. Dont be surprised if we not only meet the deficit target but also beat it, he added.

Finance minister P Chidambaram had said no additional borrowing over and above the budgeted gross market borrowing of Rs 5.7 lakh crore might be needed this year. In December, Parliament allowed the government to spend Rs 30,804 crore more on fuel subsidies and equity infusion in loss-making Air India.