In economics, austerity describes policies used by governments to reduce budget deficits during adverse economic conditions. These policies may include spending cuts, tax increases, or a mixture of the two. Austerity policies may be attempts to demonstrate governments’ fiscal discipline to their creditors and credit rating agencies by bringing revenues closer to expenditures; they may also be politically or ideologically driven.
The News
The Finance Ministry on Thursday ordered with immediate effect a mandatory 10 per cent cut in the Centre’s non-plan expenditure for the year 2014-15. The cut does not cover interest payment, repayment of debt, defence capital, salaries, pension or the Finance Commission’s grants to States, according to the Ministry’s circular. Subsidies will face the brunt of the cuts.
The UPA Government too had in place similar austerity measures. For 2013-14, former Finance Minister P. Chidambaram had rolled out cuts of 15 per cent on average across both plan and non-plan expenditures of ministries. Union Finance Minister Arun Jaitley has spared plan expenditure, that goes primarily towards development schemes, from his 10-per cent spending cut.
A Finance Minstry release on Thursday’s cuts said the objective of the fiscal prudence and economy measures is the need to rationalise expenditure and optimize available resources. It also said that the Ministry had been issuing the austerity instructions from time to time with a view to containing non-developmental expenditure and releasing of additional resources for priority schemes. The last set of instructions was issued on September 18, 2013 after the Union Budget, it said.
The Ministry also revived its standard measures, including curbs on conferences abroad or in five-star hotels, purchase of Government vehicles and staff cars, travel curbs on flying First Class and ban on new posts.
Referring to jobs in government departments, it said there will be a total ban on new posts and those that have remained vacant for more than a year will not be filled except “under very rare and unavoidable circumstances”.
