7 points to cut expenditure and control budget deficit

The root cause of India’s Budget crisis is in impossibly high deficits.

Deficits can be controlled only in two ways: (a) by raising revenue, and/or (b) by cutting expenditure. Budgets that would unravel either a savage plan for revenue generation or a savage plan for cutting expenditure, or possibly both.

We must concentrate on curbing expenditure, wrote Economist DR Pendse in 2000.

1. Total government expenditure should be frozen.
   • If a minister chooses to spend more on a particular activity, he will thus be obliged to first effect equivalent savings on some other activities.
2. Borrowing and/or lending of resources among the various ministries should be permitted, at a mutually agreed rate of interest.
3. A carry-forward should be permitted, and it should be well rewarded.
   • At present there is a spending spree among ministries and departments in February and March every year.
   • if the actual expenditure is less than budget grant, the grant for the next year is almost certain to be reduced proportionately.
   • If a ministry has a budget grant of say Rs 1,000 crores for 2000-01 but manages within Rs. 900 crores, not only should the saved Rs 100 crores be added to its allocation in the following year, but the ministry should be given an extra 15% of the saved amount as a gesture of appreciation.
4. Ministries should be free to ask surplus staff members to sit at home for say two years or so, with their full salary cheques being sent to them every month
   • the total cost of an employee to the employer is much more than the salary paid.
   • the extra return to them from every additional employee is well above this total cost.
   • there is evidence from other countries too that most of the workers sitting at home, even on full salary cheques, find other and better jobs, and do not report back after the stipulated period.
5. When employees retire, the resulting vacancies should not be filled up, particularly when there are several posts of an identical designation.
   • the Minister concerned should be given the freedom not to fill up specific posts.
   • if there are say fifty undersecretaries and five were to retire, the remaining forty-five should have to manage the total workload
6. Exercise of zero-based budgeting should be forthwith initiated and implemented.
   • There are dozens of government activities that have lost their relevance in the context of reforms.
   • There is duplication all round.
7. Government should not take up any, repeat any, new activities of any size without the express approval of the Prime Minister; and unless they are of a strategic or sensitive nature, details about these should be publicised.
   • The latest Economic Survey has underlined the fact, in the context of the success of the IT industry, (Information technology), that things move far better when the Government keeps itself out of them.

Lord Keynes reportedly said, “Man will do the rational thing, but only after trying all the irrational alternatives.”

This essay is taken from the budget commentary titled “Budget (200-01) Drifting Towards the Cliff” published by the Forum of Free Enterprise in March 2000

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