Hard-pressed to meet the fiscal deficit target of 4.8% of the gross domestic product (GDP) — the deficit in the first four months had touched a disconcerting 63% of the full-year target — North Block also gave explicit instructions to all central ministries to strictly abide by the rule that not more than 33% of the Budget Estimate (BE) be spent in the last quarter of the fiscal, while the expenditure in March, the last month of the fiscal, would not under any circumstances, be more than 15% of the BE.
Analysts welcomed the the expenditure compression envisaged by the ministry, as these would help avoid a sovereign rating downgrade but conceded that these spending curbs could have a negative effect on growth, given that private consumption has hit a nadir and corporate investments have hardly improved.
In FY 13, a deep Rs 1-lakh-crore cut in Plan expenditure which mostly includes capital spend, had allowed the Centre to reduce the fiscal deficit to 4.9% of GDP but that indeed had a stultifying effect on growth in the year, which slipped to 5%. The government has admitted that the spillover effect of that expenditure compression was evident in Q1FY14 with the growth slipping to a four-year-low of 4.4%. The government’s final consumption expenditure dropped 6% in the first quarter of this fiscal from the previous quarter.
According to a finance ministry release, every ministry will effect a mandatory 10% cut in non-Plan expenditure excluding interest payments, repayment of debt, defence capital, salaries, pension and Finance Commission transfers to states. This means that close to a half of the budgeted non-Plan expenditure of Rs 11.09 lakh crore for FY14 would be subject to the cut, translating into some Rs 50,000 crore. Sources said that subsidies, budgeted at Rs 2.3 lakh crore, are likely to be kept within budgeted limits thanks to the progressive deregulation of fuel prices and the fact that no significant additional burden on food subsidy is seen this fiscal on account of the Food Security Law.
The ministry said: “no re-appropriation of funds to augment the non-Plan heads of expenditure on which cuts have been imposed, shall be allowed during the current fiscal year. The restriction of 33% and 15% expenditure ceiling is to be enforced both scheme-wise as well as demands for grant as a whole subject to RE (revised estimate ) ceilings.”
Calling for strict observance of discipline in fiscal transfers to states, PSEs and autonomous bodies, the finance ministry said: “The rush of expenditure on procurements should be avoided during the last quarter of the fiscal year and in particular, during the last month of the fiscal year” so as to ensure that there was no infructuous or wasteful expenditure.
Further, departments have been banned from holding meetings in five-star hotels and officials barred from executive class air travel.