Remember that in 2012-13, the finance ministry had issued similar instructions to contain unnecessary expenditure in three different circulars - once on May 31 and two more directives in quick succession on November 1 and 14. Note, that the first circular was issued even before P Chidambaram had taken charge of the finance ministry. The combined effect of all these circulars on the government's finances was noticeable. The government's fiscal deficit last year was budgeted at 5.1 per cent of GDP. But some estimates by the middle of the year had showed that in a business-as-usual scenario, the fiscal deficit could widen to even 5.6 per cent of GDP. Thanks to a variety of measures including those outlined in the circulars, the final estimates showed the fiscal deficit at a lower level of 4.9 per cent.
Cynicism about the actual impact of the austerity drive in 2013-14, therefore, should be qualified by the positive outcomes achieved last year. Indeed, closer scrutiny of the main measures could give us some indication of the extent of savings the government is likely to achieve. Take a look at the move to cut 10 per cent of non-Plan expenditure excluding interest payment, capital expenditure on defence, salaries, pension and grants to states mandated by the Finance Commission. Almost two-thirds of the total non-Plan expenditure of about Rs 11 lakh crore would escape the 10 per cent cut as a result of the exemption criteria introduced in the circular. In other words, the real savings would be Rs 37,800 crore, assuming that only Rs 3.78 lakh crore of non-Plan expenditure is all that would come under the scanner. Even then, mind you, this would not be a small gain, as this will help reduce the fiscal deficit by almost 0.33 percentage point of GDP.
More From This Section
That is not all. There are a few more significant moves in the latest circular. The freeze on new appointments either under the Plan or non-Plan schemes will have the effect of capping the government's expenditure on salaries. Coming as it does some months before the general elections due in May 2014, the finance ministry move will essentially veto attempts by central ministers to create some jobs for new schemes and gain political mileage. What's more, posts that have been vacant for more than a year will not be allowed to be revived, except under "rare and unavoidable circumstances". In such a situation, specific clearance of the department of expenditure will become mandatory.
The bunching of expenditure in the last quarter of the year always creates problems in managing government finances and ensuring quality in the way financial resources are spent on projects and schemes. This becomes even more complicated when it happens to be an election year. Thus, last week's circular proposes to enforce the principle that not more than a third of the annual expenditure provided in the Budget estimates can be spent in the last quarter of the financial year. There are further restrictions. The expenditure in March, the last month of the financial year, cannot exceed 15 per cent of the annual spend provided in the Budget estimates, so that decisions are not taken in a hurry to somehow use allocated resources. More significantly, the restrictions of ceiling on such expenditure (33 per cent in the January-March 2014 quarter and 15 per cent in March 2014) would be enforced on each scheme and item in the demands for grants. In other words, no concession has been granted while enforcing financial discipline.
If there is any problem with the circular on austerity drive, it seems to be with the manner in which it mandates travel by civil servants. Officers have been asked to travel in economy class only for domestic travel. But no secretary or a special secretary (or members of the central boards of direct taxes and indirect taxes or heads of forest and police organisations) would be impacted by the circular. This is because the stipulation on domestic travel by economy class exempts all officers who are in the "apex scale" in civil service. Was maintaining this distinction necessary? Making a distinction between a secretary or special secretary and an additional secretary on austerity issues can give rise to many other avoidable problems.
Interestingly, the circular imposes far less stringent curbs on international travel by officials. All officers are allowed to travel by their entitled class for international travel but officers in the "apex scale" have been asked to travel only by business class. And of course, it stipulates that no companion-free ticket on domestic or international travel is to be availed of. The circular on officials' travel has once again reiterated the need for a thorough overhaul of the entitlement system that can be followed even after the austerity drive is over.