Government launches austerity measures to correct fiscal imbalances

As committed in Parliament by Finance Minister Pranab Mukherjee during the budget session, the government on Thursday launched an austerity drive with immediate effect. Aimed at correcting the fiscal imbalances and improving the macroeconomic environment, the government imposed a mandatory 10 per cent cut in non-Plan expenditure, banning the creation of new posts and purchase of new vehicles, and restricting foreign travel and holding of conferences in five-star hotels.

In a office memorandum to Secretaries of all Ministries and departments, the Expenditure Secretary Sumit Bose said: “In the context of the current fiscal situation where there is a tremendous pressure on government resources, there is an urgent need for rationalisation of expenditure and optimisation of available resources with a view to improve the macroeconomic environment.”

Even as most of the measures have been imposed earlier at times of crisis, the steps to cut wasteful expenditure this time too, could not have been timed better. The day saw the rupee plunging to a new low, the stock market collapsing further owing to global uncertainties as also the downward revision in GDP growth estimates for fiscal year 2011-12.

To tide over the difficult economic situation during the current fiscal, every Ministry and department has been directed to effect a 10 per cent mandatory cut in non-Plan spending. “No re-appropriation of funds to augment the non-Plan heads of expenditure on which cuts have been imposed, shall be allowed during the current fiscal year,” the memorandum said. However, the reduction would exclude expenditure on interest payments, debt repayments, Defence capital, salaries, pension and Finance Commission grants to the States.

As for other cost-cutting measures, while the purchase of vehicles stand banned “until further orders, including against condemned vehicles,” only “absolutely essential” conference and seminars are to be held, but in no case should they be in five-start hotels. Here too, a 10 per cent cut on budgetary allocations for such conferences shall be effected.

Foreign travel will have to be restricted to “most necessary and unavoidable official engagements based on functional necessity” and it would be the responsibility of the Secretary of each Ministry to ensure that the guidelines are strictly followed. Moreover, while the delegation size of duration of visit will be kept to “absolute minimum,” it will be ensured that officers of the “appropriate level” dealing with the subject are sponsored instead of those at higher levels. Significantly, however, there is no directive on the class of travel that the officers should adhere to.

The Centre, on its part, will also observe discipline in fiscal transfers to States, public sector units and autonomous bodies.

“No amount shall be released to any entity [including State governments] which has defaulted in furnishing utilisation certificates for grants-in-aid released by the Central government without prior approval of the Ministry of Finance,” it said.

The Finance Ministry also directed Ministries and departments to guard against and avoid any rush of expenditure on procurement during the last quarter of the fiscal and, in particular, the last month of the year “so as to ensure that all procedures are complied with and there is no infructuous or wasteful expenditure.” This directive is particularly significant as the CAG, in a recent report, pointed to massive spending by certain departments on the fag-end of the fiscal year.

The memorandum listed certain specific steps that have to be adopted in that unspent balances available with States and implementation agencies must be taken into account before further release of funds are made.

Monthly returns must

With regard to maintaining discipline in fiscal transfers to States, it said that State governments are required to furnish monthly returns of Plan expenditure in respect of the Central and the Centrally sponsored schemes. “This requirement may be scrupulously enforced,” it said.

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