Faced with acute financial constraints, the finance ministry has asked for a Rs 3-lakh crore cut in the gross budgetary support (GBS) and the Centre's assistance to states and Union territories for the 12th Five-Year Plan (2012-13 to 2016-17). This would constitute about eight per cent of the Rs 35,68,626 crore pegged in the draft Plan document cleared by the Cabinet for placing before the National Development Council (NDC).
It is not a normal practice to cut figures after the Cabinet has cleared the Plan document. And the demand for reduction has come just weeks before the NDC meeting is scheduled for end-December. According to Planning Commission officials, such a reduction could jeorpardise the Commission's allocation to various sectors.
Finance ministry officials said the reduction has been sought due to the difficult financial position in the first year of the 12th Plan — 2012-13 — which could derail the Centre’s ability to fund the GBS component and its assistance to states and Union territories in the remaining four years of the Plan period.
The draft 12th Five-Year Plan document has already been vetted by the Cabinet and also extensively discussed in a full meeting of the Planning Commission, chaired by Prime Minister Manmohan Singh.
According to ministry officials, Finance Minister P Chidambaram had said in the same meeting that funds for GBS and the Centre's assistance to states and UT plans are pegged quite high for the 12th Five Year Plan. Planning Commission officials said the finance ministry wanted a straight away reduction of Rs 3 lakh crore in the two heads in the 12th five-year plan.
In draft Plan document, GBS was pegged at Rs 27,10,840 crore and Central assistance to states and Union territories at Rs 8,57,786 crore. In the 11th Five-Year Plan, GBS and assistance amounts were around Rs 15,89,343 crore.
GBS was pegged at Rs 3,91,027 crore and Central assistance to state and Union territories plans at Rs 1,29,998 crore for 2012-13, the first year of the 12th five year Plan.
According to Planning Commission officials, the demand for a cut in the GBS and Centre's assistance to states just weeks before the NDC meeting will put undue pressure on them to rework all the sectoral allocations. "The allocations have (already) been made on the basis of the GBS estimates; now, because of worsening domestic and global economic conditions we might need to further alter this number," said a senior Planning Commission official. While finance ministry officials agreed that the Commission will have to redo the allocation numbers, they said it can be done since the 12th Plan document has not yet been cleared by the NDC.
The finance minister recently gave a fiscal consolidation road map for five years, coinciding with the 12th Five-Year Plan. According to the road map, fiscal deficit is pegged at 5.3 per cent of the GDP for 2012-13 against 5.1 per cent in the Budget Estimate. While analysts are of the opinion that even the revised target is hard to meet, the government is quite optimistic.
The road map pegged fiscal deficit for 2013-14 at 4.8 per cent, 4.2 per cent for 2014-15, 3.6 per cent for 2015-16 and 3 per cent for 2016-17.