Budget 2001-2002

81. Charity, it is said, must begin at home. I believe austerity, too, must begin at home. To lead by example, based on the recommendations of the Expenditure Reforms Commission, I propose to abolish three secretary/special secretary level and two joint secretary level posts in the Department of Economic Affairs. This will be done in stages by 31, July. In addition, another 44 posts of directors and below will be abolished, as against 31 recommended by the ERC. 1675 posts are being abolished in the Currency and Coinage Division which will be restructured and corporatised. The National Savings Organisation is to be downsized from a level of 1191 staff to about 25. I have asked ERC to provide their recommendations in respect of the Departments of Revenue and Expenditure also. I am confident that this will expedite the process of right sizing the establishments in all the Ministries/Departments of Government.

82. The Planning Commission has commenced the task of preparing the Tenth Plan. Given the severity of resource constraints, improvement in the quality of government spending is of the essence. It has therefore been decided to subject all existing schemes, both at the Central and State levels, to zero based budgeting and to retain only those that are demonstrably efficient and essential. Furthermore, all schemes that are similar in nature will be converged to eliminate duplication. Centrally sponsored schemes that can be transferred to States will be identified. Resource flows will be linked to performance. Necessary procedural changes will also be made to speed up the decision making process for approval of schemes. Utmost importance will be given to decentralized planning.

Pension Reforms

83. The Central Government pension liability has reached unsustainable proportions: as a percentage of GDP, it has risen from about 0.5 per cent in 1993-94 to 1 per cent in 2000-2001. As such it is envisaged that those who enter central government services after October 1, 2001 would receive pension through a new pension programme based on defined contributions. In order to review the existing pension system and to provide a roadmap for the next steps to be taken by the Government, I propose to constitute a High Level Expert Group, which would give its recommendations within 3 months.

Interest Rates

84. I have drawn your attention to the increasing share of debt service burden in the expenditure budget caused by rising government debt and exacerbated by the prevalence of high real interest rates. Most interest rates in the economy are now market determined. But, their movement downward is constrained by the rigidities inherent in the administered interest rates governing the contractual saving sphere i.e. Provident Fund and Small Savings Schemes. I have examined this issue very carefully. I find that the interest rates provided in all these schemes seldom exceeded consumer price inflation by more than 3 per cent between 1980 and 1998. Since then, this difference has risen to 6 to 8 per cent. Not only are such high real interest rates putting an unsustainable burden on both Central and State Governments but the resulting high cost of capital is also inhibiting economic growth all round. I am therefore reducing most administered rates by 1.5 per cent as of March 1, 2001. Government guarantee and tax incentives for these schemes will continue. For the future, I propose to explore a better system for the determination of these rates. I propose to appoint an Expert Committee to provide recommendations on this issue.

85. The benefit of reduction in interest rates on Small Savings Deposits will be fully passed on to the States. This will reduce their borrowing cost from Small Savings by 100 to 150 basis points. In addition, I am also reducing the interest rate on loans portion of Central assistance to State Plans by 50 basis points. Alignment of interest rates on GPF by the State Governments along with the reduced provident funds interest rates at the Centre will further reduce the interest burden of State Governments. Moreover, because of the anticipated increase in gross tax collection of the Centre, devolution of central taxes to States is expected to increase by over Rs 9000 crore in 2001-02 over the current year. All these measures will help in reducing the debt burden of the States and improve their fiscal position.

State Fiscal Reforms

86. Along with fiscal consolidation at the Centre, it will be our endeavour to work jointly with the States to reform their finances. Pursuant to the recommendations of the Eleventh Finance Commission, an Incentive Fund of Rs 10,607 crore has been earmarked for the next 5 years to encourage States to implement monitorable fiscal reforms. These reforms will essentially be the States’ own programmes and considerable flexibility has been provided for individual States to design their programmes. In the fiscal year 2001-02, I have provided an amount of Rs 4243 crore towards this Incentive Fund.


Public Sector Restructuring and Privatization

87. Our public sector has expanded in almost every area of economic activity. In many ways, it has served the nation well; capability has been developed all round and a strong industrial base built up. These enterprises must now be strengthened to compete and prosper in the new environment. Last year I had defined government’s policy in this regard clearly.

88. Financial and business restructuring plans of a number of PSUs including SAIL and HMT have been approved. Since 1998 financial restructuring support to viable and potentially viable PSUs amounting to more than Rs 13,000 crore has been provided to 23 PSUs. Government has also decided to close down 8 non-viable PSUs during the current year. A package of measures for revival and closure of the various mills of National Textiles Corporation has also been approved.

89. The procedure for privatization of public sector enterprises has now been considerably streamlined. The Department of Disinvestment has been set up to accelerate the privatization process. To maximise returns to government, our approach has shifted from the disinvestment of small lots of shares to strategic sales of blocks of shares to strategic investors. The Government has already approved privatization of 27 companies in which the process of disinvestment is expected to be completed during the course of the year. These companies include among others VSNL, Air India, and Maruti Udyog Limited.

90. Given the advanced stage of the process of disinvestment in many of these companies, I am emboldened to take credit for a receipt of Rs 12000 crore from disinvestment during the next year. An amount of Rs 7000 crore out of this will be used for providing restructuring assistance to PSUs, safety net to workers and reduction of debt burden. A sum of Rs 5000 crore will be used to provide additional budgetary support for the Plan primarily in the social and infrastructure sectors. This additional allocation for the plan will be contingent upon realization of the anticipated receipts. In consultation with Planning Commission I shall come up with sectoral allocation proposals during the course of the year.