The Government’s austerity measures to cut rising budgetary deficits include cutting down foreign travel, travelling economy, a ban on holding seminars and workshops, a freeze on fresh recruitments to government service, no buying of new cars and so on.
My immediate reaction to this is disappointment. Cutting down on tours and seminars and stopping unnecessary recruitment are normal aspects of expenditure prudence and do not constitute an austerity drive.
The establishment strength of Central Government ministries and departments is 34.5 lakh; it can certainly be downsized. However, these measures will not yield any significant savings for fiscal consolidation viewed in the macro perspective. The total expenditure budget for the current year is Rs 16.65 lakh crore with pay and allowances of government establishment and travel making up Rs 1.2 lakh crore. What is urgently required is a fundamental reform of the Government’s expenditure policy and management.
Reform plan
The assumption that all non-Plan spending is objectionable and all Plan expenditure is priority is not valid. All Plan schemes cannot be considered to be of current priority. One ready example is the rural employment scheme, MGNREGS, launched before the 2009 election and still continuing with an allocation of Rs 33,000 crore in the current budget. Though a Plan scheme, it is non-developmental with no creation of rural assets and with adverse effect on availability of agriculture labour.
Subsidies get substantial funds under non-Plan. Fertilisers, food and petroleum account for Rs 2.2 lakh crore in the current budget. The food security Act will add a huge burden. The issues for critical scrutiny are: justification of continuing the schemes especially when funds are needed for development and growth, lack of targeting, reduction of costs to provide the services and supplies, and understatement of funds.
Needs review
All non-Plan and Plan activities and schemes should be reviewed to eliminate non-developmental expenditure and retain only development expenditure. As the Finance Minister observed in an earlier budget speech, there are thousands of Plan schemes needing review. In fact, the budget may be presented under development and non-development allocations.Non-Plan assistance and budgetary support under plan to support investment to PSUs is another area for scrutiny. PSUs can improve internal generation of resources.
The losses of departmentally run enterprises like the postal department and the railways have to be pruned. The operating ratio of the railways is dismal. The cross subsidy of passenger fares by freight is unjustified when the Government is striving for growth without inflation.
Time and cost overruns on major schemes and projects cast their burden on the budget. The results of output and outcome budgeting and steps to improve the efficiency and effectiveness of expenditure have to be highlighted.
The process of preparation for 2014-15 Budget has just begun. There is time to address all the expenditure issues and suggestions for reform. When the Budget is formally presented there should be transparency on specific issues and corrective action taken or initiated to propel growth. The results of expenditure policy and management reforms should be specifically reflected in the medium term for three years, including the budget year 2014-15. This will be viewed as the de facto fiscal election manifesto for the ruling party.
I n Australia, the finance ministry of the federal government releases a fiscal and economic report prior to the election.
(The author was Joint Secretary in the Union Government and IMF Budget Adviser.)