Austerity measures on the anvil as inflation shoots up

As India’s macroeconomic indicators show signs of weakness, the latest addition being the retail price inflation moving into double digit, the government may soon announce some austerity measures as stated by Finance Minister Pranab Mukherjee in Parliament on Wednesday.

"There will be some rationalisation of expenditure, going forward. Austerity drive may be on the cards,” sources said on Thursday.

Today’s data on retail inflation, which show consumer prices moving into double digit, have only made the government and the Reserve Bank of India’s task difficult.

Experts said control on spending might help at this juncture. Driven by a spurt in vegetable, milk and egg prices, India's consumer price inflation surged to 10.36 per cent in April as against 9.38 per cent in March.

Sources said vegetable prices have gone up by around 25 per cent, while price of edible oil, milk and eggs also increased substantially.

Farm experts, however, said food and vegetable price will only rise in the coming month once the base effect wears off.

Last week’s figures on industrial production, which printed negative to growing deficits and falling rupee, indicated that the government is under stress. At this juncture, a cut in non-plan expenditure, which forms a part of the austerity drive, can save the government, experts said.

The government has already announced a cut in subsidies, which comprise a major part of non-plan expenditure, to 2 per cent of the GDP in the coming years. The Planning Commission has also favoured around 3 to 3.5 per cent cut in non-plan expenditure from the current 10 per cent of the GDP.

Sources said allocation of various schemes and other establishment expenses will be curtailed. A ban on purchase of new vehicles by government departments, curb on foreign travel by officials and holding conferences in five-star hotels may also be on the cards.

According to the sources, the austerity measures may be identical to what followed the 2008 financial crisis.

Mukherjee has already stated in Parliament that the government will take some “unpopular” measures to deal with fiscal problems. He also favoured a hike in fuel prices after price of crude oil in international market swelled.