Pranab on why austerity drive is necessary

Justifying the government's austerity drive, Finance Minister Pranab Mukherjee said on Tuesday the restrictions on foreign visits and other expenses are aimed at curbing wasteful expenditure and containing fiscal deficit.

"I sent a note (on austerity in government departments) and Prime Minister has approved in certain areas where I considered that wasteful expenditure should be avoided and that money should be deployed for developmental work," he told a press conference.

. . .

Amid increasing subsidy on food, fertiliser and fuel, the government on Monday asked ministries and departments to restrict foreign travel and refrain from holding meetings in five-star hotels with a view to reducing public expenditure.

The government has also advised the ministries not to buy new vehicles or create posts.

Mukherjee said while there is no concern on the revenue collection front, the subsidy bill of the government on crude oil may go up if prices continue to remain high.

Even proposals for study tours and workshops abroad will not be entertained unless fully funded by the sponsoring agencies.

. . .

Besides, the government may have to shell out more to meet the subsidies on food and fertiliser.

"(So) I shall have to keep the target of the fiscal deficit. . . but surely I am interested to have some austerity measures to avoid the wasteful expenditures, but not productive expenditure," he said.

The government proposes to keep the fiscal deficit at 4.6 per cent of the gross domestic product in 2011-12, down from 4.7 per cent in the previous fiscal.

. . .

The government spends about Rs 73,637 crore (Rs 736.37 billion) a year on fuel and fertiliser subsidies.

It is likely to spend about Rs 82,000 crore (Rs 820 billion) on food subsidy this fiscal and the bill may go up to Rs 95,000 crore (Rs 950 billion) once the National Food Security Act comes into play.

The government is expected to lose around Rs 36,000 crore (Rs 360 billion) during the current fiscal on account of duty cuts on petroleum products.

On the other hand, the government may find it difficult to mop up Rs 40,000 crore (Rs 400 billion) from sale of equity in the public sector companies.

. . .

The government is aiming to restrict its fiscal deficit at 4.6 per cent and revenue deficit at 3.4 per cent of the gross domestic product in 2011-12.

A rising subsidy bill and an economic slowdown threaten to put the government's efforts off-track.

This is the second time in the last three years that the government has taken such austerity measures.

Such measures were taken last in 2008-09 after the collapse of Lehman Brothers that pushed the global economy into recession.