Curb on ministries' cash withdrawal

In a bid to curb spending, the government will soon unveil a novel 'Exchequer Control' scheme, which will bar ministries to withdraw money from banks beyond a pre-set limit for a specified period.

The move is part of expenditure reform measure, which is quietly taking place to curtail over-spending and bunching of expenditure and thereby check fiscal deficit below 4.3 per cent of GDP in 2005-06.

The details of the Exchequer Control scheme will be worked out with concerned ministries and banks in few weeks, expenditure secretary D Swarup said on Thursday.

"The existing cash management system will be extended to Exchequer Control scheme," he said. Bankers may be told to honour cheques of various ministries only up to a limit.

This will have 2-fold effect -- impart more fiscal discipline and enable the finance ministry to foresee expenditure.

The finance ministry will discuss in detail with various ministries and Reserve Bank before finalising the modalities of the scheme to be implemented in 2-3 months.

The urgency in implementing such a scheme comes at a time when fiscal deficit has been pegged at 4.3 per cent of the GDP for 2005-06, which is slightly higher than what is required by the FRBM Act.

Swarup, however, said fiscal deficit is likely to be lower than the budgeted figure due to host of reasons.

The budget has projected a optimistic target of 26 per cent hike in plan expenditure next fiscal, while revenues target has been conservative at 21 per cent.

For 2005-06, total revenue receipts has been budgeted at Rs 3,51,200 crore (rs 3512 billion) as against the revised estimate of Rs 3,00,904 crore (Rs 3009.04 billion) and budget estimate of Rs 3,09,322 crore (Rs 3093.22 billion) for 2004-05.

Of the total revenue receipts, tax collection is slated to grow by over 21 per cent to Rs 2,73,466 crore (Rs 2734.66 billion) next fiscal from the revised estimate of Rs 2,25,804 crore (Rs 2258.04 billion).

The Union Budget targets to keep its revenue deficit at 2.7 per cent of GDP for 2005-06, same as the revised estimate for 2004-05.

Swarup said the impact of implementing 12th Finance Commission recommendations will be to the tune of Rs 26,000 crore (Rs 260 billion) next fiscal.

"The states' own resources will go up in 2005-06 due to TFC, which recommended higher devolution of taxes, debt relief and grants," he said.

However, the Centre expects to absorb the impact and end next fiscal with a lower deficit than projected in the budget. The Centre's borrowings could also be lower than the budgeted amount.