The UPA-II government’s promises of big bang policy action are unlikely to be kept. For, the severely strained finance ministry, led by finance minister P Chidambaram, may feel compelled to cut back on key schemes like the food security programme, direct benefit transfer or DBT, development projects, welfare funding of various ministries and central assistance for states and Union Territories.
In line with the gloomy fiscal deficit numbers, the finance ministry has issued a diktat on expenditure of other ministries for the remaining part of the government’s tenure.
North Block has asked ministries to ensure that expenditure for this fiscal would not exceed estimates under any circumstances. A circular from the Department of Economic Affairs says that “under no circumstances should the revised estimate ceilings be breached... Instructions relating to 33% and 15% expenditure ceilings in the last quarter and last month, respectively, of the financial year may be scrupulously followed”.
Already, it is getting increasingly difficult for the government to manage funds for its food security drive. Now, government departments across sectors will be in for a rude shock as the finance ministry diktat capping the expenditure will likely translate into a massive cut in their Plan Expenditure.
A senior ministry official said, “Given the fiscal situation, arranging for the budgeted Rs 10,000 crore for the Food Security Act is increasingly becoming a huge challenge.”
An inter-ministerial note for curtailing the DBT budget by Rs 1,300 crore has already been prepared by the finance ministry mandarins.
The government is also looking at chopping off at least Rs 1.30 lakh crore from the Rs 5.55 lakh crore Plan expenditure of this fiscal, which will affect key government schemes.
Non-Plan expenditure comprises interests, subsidy and pensions on which government does not have scope to economise.
While the human resources development ministry’s resources will get curtailed by Rs 5,000 crore, the rural development ministry’s budget will see a chop of Rs 15,000 crore.
“Schemes pertaining to primary education will mainly get affected due to the cut in allocations for the two ministries,” said a government official. Experts, meanwhile, called for control of fiscal deficit to rein in inflation. “Any further inflationary pressure would further depreciate the already weak rupee. Besides controlling spending, the government should focus on structural reform to stimulate productivity and exports,” said Rakesh Nangia, managing partner at tax consultancy firm Nangia and Co.
The finance ministry is also carrying forward this fiscal’s payables of Rs 48,000 crore to the next fiscal, potentially overburdening the next government.
Curtailing the Plan expenditure had been the government’s strategy to salvage the fiscal numbers since last year. Last fiscal, the government chopped off Rs 91,838 crore from the Plan expenditure.