Modest additional support for flagship schemes, cut for others

Written by Subhash Narayan | Kirtika Suneja | New Delhi | Updated: Jan 12 2012, 08:52am hrs
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Keen to rein in the runaway fiscal deficit, the UPA government plans to unveil a major expenditure control exercise in Budget 2012-13. On the agenda is a 5-10% cut in allocation for central ministries not overseeing any big populist scheme and a modest hike of 10-12% in outlays for ministries running the governments flagship programmes.

This compares with an average hike of 18% in the gross budgetary support (GBS) to the ministries for 2011-12 under the Plan head. The government had provided R4,41,547 crore as GBS for Plan schemes in 2011-12.

The move comes at a time when the finance minister Pranab Mukherjee is expected to seek Parliament approval for amending the fiscal responsibility law in view of the slippage this fiscal. Political considerations are preventing the government from taking any concrete measure on the more substantive issue of slashing subsidy bills.

Sources told FE said that the austerity drive could see the axe falling on ministries such as environment and forests, communications and IT, labour and employment, and departments of animal husbandry, road transport and highways among others. These ministries do not supervise any major social sector programmes needing government support. On the other hand, many other ministries rural development, agriculture, food, urban development, human resource development, etc could get a hike in budgetary support even beyond 10% level to keep their schemes operational, and in come cases, expand their scope.

Expenditure control will be paramount for the finance minister when he presents the next Budget. The Planning Commission has already told ministries to work their budget keeping three scenarios of a 5%, 10% or 15% hike in gross budgetary support while also looking at avenues to cut expenditure wherever possible, said an official in the Planning Commission.

The finance ministry has indicated that our budgetary support will be cut by well over 5% as it does not have enough funds to meet all our expenses, said a senior environment ministry official.

Officials in the ministry of sports and youth affairs said their budgetary allocation as per the revised estimates for the fiscal is already down 30-40% and finance ministry has indicated further cuts for the next fiscal. Similar views were also expressed by officials in other ministries such as civil aviation, steel and mining.

A department of information technology (DIT) official, while expressing concern over expenditure cuts, said the department would remain unaffected as increased usage of cloud computing has helped reduce expenses on many schemes.

The government fears that revenue flows even next fiscal may remain subdued due to gloomy economic conditions.

This will keep fiscal deficit under pressure and expenditure cuts are expected to put some check on the deficit. The fiscal deficit this fiscal (2011-12) is budgeted at 4.6% of GDP, but with higher government borrowings and increased expenditure, it is expected to close the year at well over 5.5%.

The government's proposed austerity drive follows a related suggestion offered by the committee on centrally sponsored schemes (CSS) headed by Planning Commission member BK Chatuirvedi. The committee, which has already submitted its report to the PMO, has suggested bringing down operational CSS from 147 at present to just about 59. Even the Rangarajan panel has suggested reducing the number of CSS as an expenditure control measure. The approach paper of 12th Five year Plan, which was approved in October by the country's apex planning body National Development Council headed by the Prime Minister, has also made a strong case for keeping the expenditure in check to bring down fiscal deficit to 3% level by 2016-17, the last year of the Plan.

While the government is working to clean up its account by installing expenditure controls, it has urged its blue chip public sector undertakings to step up investment in the next fiscal to spur growth in the economy. Ironically, the government is also looking to squeeze the investment opportunity of these CPSEs by asking them to buy their own shares from the government under a buyback programme, by dipping intro their cash reserves.