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Monday, September 23, 2013

Finance ministry violates its own austerity diktat

NEW DELHI: The finance ministry is the custodian of government funds but it itself has violated spending instructions it issues every year.

While North Block expects all ministries to spend only 15% of the annual allocation in March, and 33% in the fourth quarter, at least three of its departments — financial services, expenditure and economic affairs — violated the norm in 2011-12 .

The department of financial services spent two-thirds of the annual fund allocation on March 31 — the last day of the financial year — to ensure that the money was spent. Economic affairs department (DEA) fared only marginally better, spending 56% of its annual allocation on the last day of the fiscal year.

The findings of the Comptroller & Auditor General in a recent report would be particularly embarrassing for DEA as the budget division is part of the department and issues the annual circular that puts a cap on spending in the fourth quarter , as well as March. 

The practice since 2006-07 was put in place to ensure that money was spent through the year and the ministries did not go on a spending spree during the last few days of the financial year to exhaust the funds allocated to them. Clearly, with the finance ministry itself ignoring the instructions, there was no way it could have enforced it. As a result, rural development, shipping , power transport, textiles, coal and information technology ministries spent over 15% of the annual allocation on March 31, breaching the cap for the month.

So, where was the money spent? The financial services department went about recapitalizing banks and doling out subsidies on the last day of the year, tasks it could have done weeks before. Similarly , DEA offered loans, contributed to the equity base of African Development Bank and paid subsidies. The financial services department has taken the plea that it could not have spent the money earlier as funds were allocated in the supplementary demand for grants. The same argument has been made by the petroleum ministry , which spent 96% of its annual quota in March.

Former officials said it is the finance ministry which is to blame. "Through the year it is known that public sector oil companies will make losses by selling fuel below cost. Yet, year after year, finance ministry does not allocate money to show better deficit numbers," said a retired official , who did not wish to be identified.

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