The unprecedented spending cut ordered by the finance ministry last week has left officials at other ministries and departments fuming but North Block is in no mood to relent. The drastic reduction could even see the fiscal deficit contract to 4.5-4.6% of GDP, lower than the budgeted 4.8%.
As per revised estimates communicated to ministries at the end of last week, expenditure in some cases has been cut by as much as 30% below budget estimates, leaving some departments wondering how they will manage the remaining months.
Plan expenditure, pegged at 5.55 lakh crore in the budget, is expected to come down by about 1 lakh crore, a senior government official aware of the development told ET.
Similar Cut in FY13
"We have been very clear from the beginning that the fiscal deficit target of 4.8% of the GDP will not be allowed to be breached at any cost," said a finance ministry official. Besides, the ministry is also making room for any exigencies, with elections scheduled to be held in a few months. "We don't know... any last-minute expenditure requirement may spring up... so we have to keep options open," the finance ministry official said.
Those facing the brunt of the cuts are rural development, which has one of the biggest allocations, power, human resources development, commerce, water resources and the finance ministry itself. Overall, by the end of November 2013, the government had managed to spend only 52% of plan allocation or 2.90 lakh crore, leaving the finance ministry room to crunch spending. This reduction comes on top of a 10% mandatory cut in non-plan expenditure ordered earlier.
Ministries and departments suffering the worst cuts are not amused, with some officials warning of its impact on the economy, not something the UPA government will want to countenance as it prepares to seek re-election.
"Plan spending is like a sitting duck... But reduction in capital expenditure will hurt growth," said a senior government official, pointing out that much of the slack in spending had been removed in the last budget.
Finance ministry officials countered this by arguing that in many instances the cuts are savings that would have been made anyway on account of the low utilisation of allocated funds. Besides, spending by some ministries has been slow. A government rule prohibits ministries and departments from spending more that 33% of their budget in the fourth quarter. Some ministries could spend only 23-36% of their total allocation in the first eight months of the financial year, facing the biggest cuts.
A similar reduction in plan spending in 2012-13 had brought the fiscal deficit down to 4.9% of GDP and helped the country avert a sovereign rating downgrade that had been imminent. Still, severe cutbacks will have negative effects, said ratings agency Crisil's DK Joshi. "If you use a sledgehammer to cut spending, you can achieve 4.8% but it will have an impact on growth," he said.
Finance ministry officials said they had no choice as tax collections were below target and the fiscal deficit touched 94% of the full year's level in November itself, calling for extreme action to avoid going slippage.
Source:-The Economic Times
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