Budget 2002: Focus on fiscal responsibility - Views on News from Equitymaster

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Budget 2002: Focus on fiscal responsibility

Feb 28, 2001

When Finance Minister (FM) strutted out today to begin his Budget 2002 speech, not many expected too much out of the budget, given the FMs past record of shying away from key issues like cutting non plan expenditure and controlling the fiscal deficit. Well, for once Mr. Yashwant Sinha positively surprised the nation and corporate India. He started off by saying that "The most serious problem confronting the economy is the poor state of the fiscal health of both the Central and State Governments. The combined fiscal deficit of the two together is in the region of 10% cent of GDP". He outlined that the centre had to borrow Rs 1,110 bn in the current year to make both ends meet. The FM further stated that 70% of this borrowing (Rs 770 bn) was financing unproductive revenue expenditure.

With this background, he outlined an expenditure management plan. The major facets of this belt-tightening plan were:

  • From now on user charges for services provided by government and its agencies will be revised keeping in view the increased cost of these services. A portion of this increase will be provided to enhance the maintenance and quality of these services. Similarly, postal rates will be revised moderately to contain the rising postal deficit.
  • The government has set a target to decrease the strength of its staff by 10% in the next five years. For achieving this, all requirements of recruitment will be scrutinized to ensure that fresh recruitment is limited to 1% of total civilian staff strength. As about 3% of staff retire every year, this will reduce the manpower by net 2% per annum.
  • Standard licence fee (rent) on government accommodation will be enhanced by 50% for Group A, 25% for Group B and 15% for other categories of staff with effect from April 1, 2001.
  • Facility of LTC to Central Government employees will be suspended for 2 years for the remaining part of the four-year block period except for employees who are entitled to last LTC before retirement.
  • Use of Information Technology in government activities with large public interface will be maximized to promote efficiency. For this purpose, operations like pension, pay and accounts offices, passports, income tax, customs, central excise, will be fully computerized by March 31, 2002. Public sector banks and insurance companies are also being asked to complete computerization of their operations within this period.

Added to the above, the FM addressed the critical issue of downsizing in his own administration. The Expenditure Reforms Commission, which was set up last year, presented reports concerning downsizing in government ministries and departments. These recommendations will be implemented by July 31, 2001 and identified surplus staff transferred to the Surplus Pool. The Surplus Pool under the Department of Personnel will be streamlined and equipped to redeploy and retrain surplus staff. Employees in the surplus pool will also be offered an attractive VRS package. This is the very first time the FM has come out with concrete downsizing targets to achieve.

Though Mr. Sinha is likely to face a lot of opposition on this, the very fact that he has openly addressed this critical issue, is a sign of things to come. Though the target of reducing the fiscal deficit to 2% and completely eliminating the revenue deficit over the next 5 years, looks tough, it is still "Well done Mr. Sinha!"

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