FinMin announces austerity steps

Last Updated: Thu, May 31, 2012 20:02 hrs

Amid the economy growing the slowest in nine years during 2011-12, the government on Thursday announced various austerity measures to cut expenditure and instil confidence among investors.

The finance ministry has asked all government ministries and departments to help cut non-Plan expenditure by 10 per cent. It also barred these from holding conferences in five-star hotels, buying new vehicles and travelling abroad, unless absolutely necessary. A ban on the creation of new government posts has also been imposed.

A memorandum to implement Finance Minister Pranab Mukherjee's statement in Parliament on Thursday came at a time when growth in India's gross domestic product (GDP) for 2011-12 plummeted to 6.5 per cent, the lowest since 2003-04. Reacting to the GDP data, Mukherjee said the government would take measures to address fiscal concerns, revive investor confidence and help capital inflows.

In the memorandum, the finance ministry said guidelines on austerity measures were issued to contain non-developmental expenditure and release additional resources for meeting the objectives of priority schemes. Officials, however, admitted the measures announced on Thursday had more to do with sending a strong signal.

The government has pegged non-Plan expenditure for 2012-13 at Rs 9.7 lakh crore. The planned 10 per cent cut in this would not apply to interest payments, repayment of debt, defence capital, salaries, pension and grants by the Finance Commission to states.

“In the context of the current fiscal situation, in which there is tremendous pressure on government resources, there is an urgent need for rationalisation of expenditure and optimisation of resources to improve the macroeconomic environment,” Expenditure Secretary Sumit Bose said in the memorandum sent to all government departments.

Besides the ban on meetings and conferences in five-star hotels, a 10 per cent cut on budgetary allocation for seminars and conferences would also be put in place. Holding exhibitions, seminars or conferences abroad would not be allowed, except in cases of trade promotion. Foreign travel would be restricted to only the most necessary and unavoidable official engagements. Proposals for study tours abroad would also be disallowed, unless entirely funded by sponsoring agencies. Purchasing new vehicles, even ones to replace old or faulty ones, would also be banned.

The finance ministry also sought discipline in fiscal transfers to states, saying unspent balances would be taken into account before additional funds were released. Ministries have been cautioned rush of expenditure should be avoided in the last quarter or the last month of a year to avoid wasteful expenditure.

This is the third time in the last four years the government has taken such austerity measures.

It had announced similar measures in July 2011, as well as in September 2009, when the global economy had slipped into a recession and India was reeling under a drought.

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