As the economic scenario has been grim in the first half of the current fiscal, the government is planning to announce major cuts in the planned expenditure for its key ministries, according to finance ministry sources.
This in turn will affect the projected expenditure for the 12th plan period (2012-17). Marred by falling rupee, high current account deficit and running foreign investors, the economy is likely to grow at a modest 5.5% as suggested by the prime minister Manmohan Singh, in the current financial year.
Central government’s fiscal deficit shot up to Rs3.41 lakh crore, which is 63% of the budget estimates announced by the finance minister in the first four months of 2013-14.
According to sources in the government, this has forced finance secretary, Arvind Mayaram to convey to the ministries that they will have to cut down their expenditure by 20-25%in the revised estimated for the current fiscal year.
In 2012-13, as well, the government had slashed planned expenditure by 18% to Rs4.29 lakh crore from Budget Estimate of Rs5.21 lakh crore.
Due to election year, the UPA government is not in a position to announce any cut in the flagship schemes like Indira Awas Yojna, Mnrega and newly enacted food security act. Other key ministries that deal with infrastructure like railways, roads and highways and ministry of information and broadcasting are likely to take major cuts in their budget.
Analysts believe that the economy is currently suffering from high inflation and current account deficit and in this scenario the government has no option but to cut its expenditure.
“It does not matter how much money is spent as demand is not an issue in the economy. By spending less on some sectors the government will actually create scope for private sector spending,” said Pronab Sen, chairman of National Statistical Commission.
While a cut in the ministries’ budget will mean freeze in allocation in the last two quarters of the year, this will result in lower expenditure on modernisation of railways, building up of highways and other infrastructure projects.
Such huge cuts in the planned expenditure in the first two years of the 12th plan period are likely to affect the growth as well as the expenditure target for the 12th plan period as a whole.
While the Planning Commission had given three scenarios for the growth in the 12th plan, where the most optimistic was pegged at 8.2% growth, followed by 6% and 5.5% respectively.
As the current scenario looks closer to the third projection made for the 12th year plan, investments in infrastructure sector pegged at Rs 56 lakh crore for the 5 year period is also likely to come down.