To limit fiscal deficit, govt may go austere this year too

FinMin likely to ask for 10% cut in non-Plan expenditure

Even as problems on the external front look slipping out of its control, the government might keep its expenditure under check to limit its fiscal deficit at the budgeted 4.8 per cent of gross domestic product in the current financial year.

It's learnt the government has decided to continue with the austerity measures it had announced last year. The finance ministry might issue instructions for a 10 per cent cut in non-Plan expenditure and a ban on creation of new government posts this year, too.

According to officials, unlike last year, the scope for a cut in Plan expenditure is limited because the allocation under this head had been increased by only 11.7 per cent over last year's Budget Estimates. Moreover, the government doesn't want to choke growth with a steep cut in Plan expenditure.

"There will be some cut in Plan, but there is not much scope for adjustment. Compression in non-Plan expenditure is rarely possible. All we can do is not fill some of the existing vacancies and cut administrative costs," said a finance ministry official, asking not to be named.

Because of the rupee's recent depreciation against the dollar, the finance ministry is expecting a higher-than-projected outgo under fuel subsidy, as well as fertiliser subsidy. The additional outgo will have to be met from savings under other heads. The first batch of supplementary demands will not have anything for these sectors, but the second one, to be tabled in the winter session of Parliament, might provide for any additional requirements after monitoring how "crude oil prices and the rupee shape up".

On the revenue side, the ministry is worried that meeting the disinvestment target of Rs 40,000 crore might be difficult, if the market situation did not improve. So far, receipts from disinvestment have been just Rs 1,325 crore. Tax collections, too, face a risk of shortfall, as GDP may grow at only 5-5.5 per cent, compared with the government's projection of 6.1-6.7 per cent.

A cut of Rs 92,000 crore in Plan expenditure last year had helped Finance Minister P Chidambaram limit fiscal deficit during the year at 4.9 per cent, against the Budget projection of 5.1 per cent and his own estimate of 5.3 per cent. GDP growth in 2012-13 had fallen to five per cent from 6.5 per cent the previous year.

This year, too, Chidambaram is keeping a close tab on the expenditure pattern of various ministries. In the third quarter, the finance ministry is also likely to issue orders asking all government departments to strictly adhere to its guidelines on restricting expenditure in the last quarter at 33 per cent of the Budget Estimates.

"We are reviewing the situation, both on external and domestic fronts, almost on a daily basis. Sometimes the monitoring is done more than once a day," said another official.

Last year, the government's austerity measures included a total ban on creation of new government posts. Besides a 10 per cent cut in non-Plan expenditure, it had barred ministries from conducting conferences in five-star hotels, buying new vehicles and travelling abroad, unless absolutely necessary.

Before that, austerity measures had been taken in 2008-09 after the global economic slowdown following the collapse of Lehman Brothers.