Budget: Departments, ministries ask for the moon

Union ministries have together sought a whopping 82 per cent increase in gross budgetary support for Plan outlay in fiscal 2010-11 over budget estimates for 2009-10.

While Finance Minister Pranab Mukherjee is aiming for a return to the path of fiscal prudence, various departments of the central government appear to be out of sync.

Demand for additional outlays range from anywhere between a 25 per cent hike over last year's budget estimates and as much as 941 per cent increase in GBS sought by the Ministry of Civil Aviation.

If the Planning Commission and the Ministry of Finance accept these proposals that totals over Rs 409,430 crore {Rs 4,094.3 billion (figures from 58 departments and ministries)}, it would mean 70 per cent of the remaining funds earmarked for the Eleventh Plan (2007-12) would be spent in the fourth year of the Plan.

The headroom available for the last year of the Plan period would then be the remaining Rs 179,171 crore (Rs 1,791.71 billion), unless the GBS for the period is revised further up, hiking the total Plan outlay.

Several ministries that are into major spending have come forward with demands in the range of 100-400 per cent. In the Ministry of Human Resource Development, the department of higher education has sought 118 per cent increase in GBS, while school education department wants a 110 per cent hike.

The Ministry of Housing and Urban Poverty Alleviation wants a 360 per cent hike and the heavy industries ministry wants 310 per cent hike, with the telecom ministry asking for a 376 per cent increase. Others seeking such steep hikes in outlay include the departments of chemicals and petrochemicals, panchayati raj and tribal affairs.

Government sources told Business Standard that while these proposals are as yet subject of discussions between the concerned ministries, the Planning Commission and the Union finance ministry, at least one Union minister has upped the ante by shooting off a letter to UPA Chairperson Sonia Gandhi alleging that the Planning Commission is "anti poor".

The case of Ministry of Civil Aviation, which has put forth a GBS proposal for Rs 1,978 crore (Rs 19.78 billion) - over 10 times of Rs 190 crore (Rs 1.9 billion) allotted in the current year - has, in fact, spent less than what was allocated in fiscal 2007-08 and 2008-09, is typical.

Most ministries that have asked for more in 2010-11 than is available for the remaining two years of the Plan have not spent what was allocated to them in the first three years of the Plan.

Terming such demands as "way off the mark" a former senior finance ministry official said, "The projections are normally high every year, but the final allocation made is in the range of 18-22 per cent increase over previous year's allocation." The 82 per cent allocation being sought is unprecedented. Ten departments and ministries are yet to submit their proposals.

The Planning Commission has started collating projections for GBS for the next financial year as a first step for the budget preparation. The final GBS number will be decided in consultation with the Ministry of Finance, which will then try to balance it with the available projected revenue, the unfilled gap being met by borrowings.

Officials point out that even if a 15 per cent increase over the current year's estimate is conceded in 2010-11, which will be almost double the average rate of inflation, implying a real increase in spending, the total GBS would amount to Rs 258,666 crore (Rs 2,586.66 billion). This contrasts with the Rs 409,430 crore (Rs 4,094.30 billion) being demanded at present.

Fiscal experts have long emphasised the need to improve the government's 'absorptive capacity', that is the ability to spend, before increase outlays, which then remain unspent.

A former Union Expenditure Secretary told Business Standard that past experience has shown ministries unable to spend the funds allocated to them whenever there is an inordinately steep increase in outlays.

"The finance ministry had introduced restrictions on spending in the last quarter by limiting it to less than about one-third of the total allocation," he said, emphasising the need to introduce expenditure control systems as prevalent in the UK and the US.

With political pressure for higher budgetary support building up, Mukherjee might find it hard to achieve a decline in the fiscal deficit ratio to 5.5 per cent of GDP in 2010-11 and further to 4 per cent in 2011-12. This year, he has a limited room to maneuver with his finances since the revenue collections are yet to pick up despite the 7 per cent GDP growth in the first half of the financial year.

The government, which set a total tax revenue target of Rs 6,41,079 crore (Rs 6,410.79 billion) for 2009-10, lower than previous year's Rs 6,87,715 crore (Rs 6,877.15 billion), has collected only 46 per cent of the budget estimate for indirect tax and half of direct tax receipts in the first eight months of this financial year.

Every year, there are eventual savings made in the Plan expenditure of Rs 8,000-10,000 crore (Rs 80-100 billion), each on non-defence and defence sides.

These are diverted to meet the unexpected expenditure on non-Plan side. In the supplementary demands to last year's budget, presented last month, the Ministry of Finance was able to squeeze out Rs 25,725 crore (Rs 257.25 billion) from the current year's allocation to various ministries and divert for other expenditure.

This year, when the budgetary support for central plan spending was estimated at Rs 239,840 crore (Rs 2,398.40 billion) and central assistance to state at Rs 85,309 crore (Rs 853.09 billion), totalling to Rs 325,149 crore (Rs 3251.49 billion), the government borrowings amounted to 6.8 per cent of GDP.