Cost cutting, a formidable task for State government

Salaries, pension, interest and subsidy account major chunk

It works like this. At the end of each financial year, a substantial amount of budgetary grants remain unutilised in several departments, mainly because of poor or non-implementation of various schemes.

For instance in 2008-09, Minor Irrigation Department could utilise only Rs 432 crore out of Rs 528 crore earmarked. A little readjustment of accounts and these funds could be passed off as ‘savings’.

It’s a little secret method of cost cutting that the Finance Department (FD) sometimes indulges in, a senior officer in Department admitted.

Not that the FD would be indulging in the readjustment this time too, but it’s a tough challenge when it comes to cutting down on revenue expenditure. Statistics speak. The salary, pension and interest bills itself eat away a whopping 43.61 per cent of the total revenue expenditure anticipated at Rs 47,238 crore for the financial year 2009-10. The government cannot restrain from paying salary and pension to its staff and interest to creditors.

Derailment of schemes

Then comes subsidies. The government has promised Rs 4,359.71 crore as subsidies for various sectors including food, transport, power, industries, housing, cooperation, agriculture and others in the 2009-10 budget. Any cut in subsidies would mean derailment of its populist schemes.

Most of the remaining balance amount  goes to the inevitable expenditure for day-to-day maintenance and administrative expenses which again cannot be done away with.
This leads to a situation wherein the government has little elbow room for cost-cutting, sources in the Finance Department pointed out. There cannot be any succour next year as the projections for the next fiscal according State Medium Term Fiscal Plan: 2009-13 indicate a higher chunk (43.95 pc of revenue expenditure) for salaries/interest/ pension and also subsidies (Rs 4,720 crore).

The government had recently announced plans to save Rs 1,500 crore under non-plan scheme as  part of austerity measures in the wake of the devastating floods in North Karnataka.

Demarcation

However, plan and non-plan expenditure are itself not well-defined. India is probably the only country to have a plan and non-plan distinction in the budgeting process. The popular conception is that plan expenditure is supposed to indicate development while non-plan expenditure is wasteful.

But, in practice there does not appear to be a clear policy for classification of expenditures as plan or non-plan. In fact, the Karnataka State Financial Management and Accountability Study conducted by the World Bank in 2004 has suggested that the state do away with plan and non-plan expenditure budgeting altogether.