Cut spending: Pranab's recipe to stabilise economy

Government may slash spending on foreign travel by ministers and officials and on meetings in five-star hotels as part of austerity measures to cut down on budget deficit in view of the tight economic situation.

Also on the cards is pruning of allocations made to various schemes, where spending will be insisted on current outlay before asking for additional money.

"The austerity drive would be divided into two parts.

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"First there would be a cut in establishment expenses, and then there could be some cut in the scheme wise expenses as well," official sources said.

With finances under stress, Finance Minister Pranab Mukherjee had announced on Wednesday in Parliament that government would resort to 'unpopular' austerity measures to deal with fiscal problems.

". . . I am going to take a little bit of unpopular steps. I am going to issue some austerity measures. . .," Mukherjee had said.

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It is likely that the government would announce some curbs in foreign tours by ministers and officials as well as insistence on travel by economy class.

"A detailed plan has to be worked out for expenditure rationalisation," the official said, adding that a decision on the scheme wise expenditure would be taken after consultation with various ministries.

In a bid to reduce wasteful expenditure and containing fiscal deficit, the government had last year cut foreign tours and and asked officials to refrain from hosting conferences in five-star hotels.

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Besides, in 2009 in the wake of global economic slowdown the finance ministry had asked various ministries and departments to cut non-plan expenditure by 10 per cent.

Such expenditures included spending on publications, professional services, advertising and publicity, office expenses, petrol, oil, lubricants except for security related requirements and other administrative expenses.

At that time too ministers were made to travel economy class in domestic and international flights.

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Anticipated fiscal deficit exceeding budget estimates by a huge margin, rising subsidy burden and slowing growth, has made the government take steps to rationalise expenditures to control its finances.

Fiscal deficit had ballooned to 5.9 per cent in 2011-12 and the government has budgeted to bring it down to 5.1 per cent in the current fiscal.

The government targets cutting the subsidy bill to below 2 per cent of gross domestic product this fiscal and 1.75 per cent in the subsequent years.

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Last fiscal, it had provided Rs 65,000 crore (Rs 650 billion) in fuel subsidy, which it hopes to trim to Rs 40,000 crore (Rs 400 billion) in 2012-13.

High subsidies are putting pressure on the fiscal deficit, which touched 5.9 per cent of the GDP in 2011-12 and is budgeted at 5.1 per cent in 2012-13.

While petrol prices were freed from government control in 2010, the government has to subsidise the oil marketing companies for selling diesel at prices lower than market determined rates.

After clocking a growth rate of 9 per cent for two consecutive fiscal (2009-10 and 2010-11), the economic growth slowed to 6.9 per cent in 2011-12.

It is projected to grow by 7.6 per cent (+/-0.25 per cent) in the current fiscal.