Fin Min tightens purse strings: no new corpus

Official sources said that the Finance Ministry directions are in keeping with the Fiscal Responsibility and Budget Management Act of 2003 which mandates that the government should cut revenue deficit by 0.5 per cent of the GDP every year to bring this to zero by March 31, 2009. The idea is also to have all government spending in a transparent manner from Public Accounts funds which are subject to Parliament scrutiny.

The other reason for the Finance Ministry’s new directive stem from the common practice of ministries to park budgetary allocations for projects in these funds so that the ministry can then use it later without having to comply with time-bound deadlines set by the Finance Ministry.

In directions issued to Financial Advisors of all ministries on April 28, the Finance Ministry has set a three month deadline to comply with these guidelines and wind up existing funds. In case some funds are required to be kept running, ministries will have to justify these with some sound logic.

A Finance Ministry note states that ‘‘reserve funds are created when the government has surplus funds to spare on specific objects of expenditure… However, as the government is resorting to deficit financing, creation of funds out of its revenue stream or through borrowing is not considered appropriate.’’ The note adds that funds created out of borrowings also add to fiscal deficit and become a liability to the government.

The order also states that ‘‘all funds will now have to be maintained in the Public Account to ensure fiscal transparency and Parliamentary control and transfers to and from the fund will be on need basis and decided as a part of the budgetary process.’’

It states that ‘‘funds of regulatory bodies may also be maintained in the Public Account but operated in such a manner as will protect their independent status.’’

The Ministry has also ensured that interest on the corpus, where applicable, will be fixed on a uniform basis and notified annually along with other administered interest rates.