Ministries to cut budget spends by up to 40%

India Inc banking on business from the government to help them tide over a difficult year have got bad news coming. Plan budgets of all ministries are in for up to 40 per cent cuts to make up for the financial gap in the governments' budget, post the telecom auctions.

Central ministries and departments have been told to cut their plan expenditure for this fiscal savagely, this week. The working rule prescribed by the finance ministry is that sums for which no demand has been raised till now will be guillotined.

So, all ministries have come out with their plan funds blocked. This is far more than what the Vijay Kelkar committee on fiscal consolidation has recommended. It had asked for a roll back of plan expenditure to Rs 4,87,674 crore, which would have meant a savings of over Rs 33,350 crore or a cut of 6.5 per cent. This included cutting back allocations for states too. But with general elections due next year, the budget cuts are now for the central government units.

The cuts have become necessary as the finance ministry is preparing for shortfall of up to Rs 70,000 crore in non-tax revenue along with a weaker-than-expected tax revenue for 2012-13. To compensate for the aggressive expenditure compression, the ministry is planning to push its spend on flagship social sector schemes to next year. This approach will keep the deficit for this year within manageable limits and allow the government to project a higher spend in next fiscal.

However, the cut in expenditure mean the ministries will run through their plan funds by December-end. This will however avoid the usual risk of bunching of expenditure in February and March. But the worry for most departments is that they get around to their big ticket expenditure at this time of the year. They have begun to roll over their tenders or are asking suppliers from the private sector to back off.

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