Belt Tightening: 5% Non-Plan Cuts For Ministries In Offing

NEW DELHI: The Finance Ministry has asked all Central ministries and departments to effect a 5% cut in their non-Plan expenditure sanctioned in Budget 2007. The move comes at at time when revenue collections have shown remarkable buoyancy during the initial months of the financial year, with direct taxes growing by over 40%.

The government had pegged non-Plan expenditure during 2007-08 6.5% higher at Rs 4,35,421 crore. Instructions have been issued to all central ministries and departments to curtail the allocation by 5% as the government has to find resources for priority schemes. Mandated FRBM targets also need to be met, a government source said. Finance minister P Chidambaram has already emphasised that revenue deficit needs to be wiped out by 2008-09 as mandated in the Fiscal Responsibility & Budget Management (FRBM) Act.

Therefore, the government is not willing to take any chances despite buoyant revenues. “We are on track to wipe out revenue deficit in 2008-09, God willing. We have brought down fiscal deficit to 3.3% of GDP and we will bring it down to below 3% next year. We are determined to adhere to the obligations under the FRBM Act and this is backed by the PM,” was how Mr Chidambaram explained the government’s stand. The situation could undergo a change only in case the UPA government decides to go in for general elections early next year.

Barring a few, spending of most of ministries is within limits. The current directive is expected to make them tighten purse strings further, the source said.

Expenditure secretary Sanjiv Mishra had held a meeting of all financial advisors attached to various ministries and departments on September 17 where the issue was discussed. The department issues instructions on austerity from time to time. Mr Mishra wanted the financial advisers who control ministerial budgets to submit quarterly reports to ministers incharge to enable finance ministry to take necessary action.

Noting that rush of expenditure towards the end of the financial year continues to be an area of concern, the instructions emphasise that not more than one-third of the Budget estimates be spent in the last quarter of the financial year and the expenditure in March 2008 should not exceed 15% of the estimates.

Payment of interest, debts, salaries, pension and defence capital as also Finance Commission grants have been exempted from the 5% cut in the non-Plan expenditure, which is at the same level as slapped in 2006-07. These instructions mandate the government offices to reduce expenses to the “minimum essential” in areas like building maintenance, office equipment, transport, communication, furniture, furnishings, stationery and hospitality, regulate advertisements and publicity campaigns.

The government has also put a ceiling of 10% of the approved financial outlay as advance payments to the autonomous bodies and the public sector undertakings for any scheme, project or acquisition. Ministries would not be able to purchase new vehicles with the North Block clamping even the replacement of condemned vehicles. Only the Armed Forces and the internal security apparatus have been excluded. The existing ban on creation of Plan and non-Plan posts has been reiterated for strict enforcement, requiring the finance ministry’s express clearance for creating unavoidable posts. Curbs have also been placed on foreign travels and goodwill visits.