The government has not been able to reduce non-interest current expenditure in the last two years and resorted to the easy option of slashing the development expenditure. Analysis of budgetary expenditure allocations reveals that a decrease of only 0.03 percent in non-interest current expenditure as a percentage of GDP was possible in 2009-10 as compared to the previous year.
The first Letter of Intent that the government submitted to the International Monetary Fund board as a prerequisite for the release of the first tranche of the Stand By Arrangement in November 2008 was to reduce non interest current expenditure by 1.5 percentage points.
The non-interest expenditure was 7.4 percent of the GDP in 2008-09, which declined to 7.1 percent in the subsequent financial year. The expenditure on this account as per estimates is forecast to rise to 7.5 percent of the GDP in the ongoing fiscal year. Thus an increase of 0.04 percent in non-interest expenditure in the current fiscal year is now expected.
Analysts say that this trend of increase in non-interest current expenditure is not a good omen for the country as it would increase the debt burden and the government would be compelled to borrow from the banking system to meet its expenditure requirements in the absence of any increase in revenue. The borrowing from the banking system would fuel inflation, already in double digits. It is critical to reduce unproductive expenditure in the prevailing fiscal crisis given that any increase tax revenue and foreign inflows are unlikely, they added.
But, they deplored that has not happened so far and seems unlikely in the coming days from this dispensation. An official of the Finance Ministry expressed apprehension that the non-interest current expenditure for the current fiscal year may rise further as a percentage of GDP on account of subsidies and law and order issues.