Spending on the social sector is expected to come down, with the finance ministry informing central ministries that their allocation may be cut by 40% this financial year to effect fiscal consolidation. The direction has come ahead of the finance ministry's plan to seek Parliament’s approval for supplementary grants of ministries in the winter session, starting November 22.

A few days ago, finance minister P Chidambaram had rolled out a five-year plan to reduce India's fiscal deficit from 5.3% in the current fiscal to 3% by 2017.

A low fiscal deficit would improve investor sentiment and help the economy grow at a faster pace. On the flip side, it could result in less availability of funds for the social sector if the tax revenue does not grow.

Chidambaram’s ministry started working on the mandate to control rising fiscal deficit by telling other ministries that fund allocation for the remaining part of the current financial year would depend on spending over the first six months of the current fiscal. “The target is to reduce the spending by around R1 lakh crore from the original budget estimate to keep the fiscal deficit at the present level,” a senior official said.

It could also result in the slashing of the Department of Posts budget for the current financial year to Rs. 300 crore, from the previously-approved Rs. 800 crore. Similarly, the Information and Broadcasting ministry's budget of Rs. 905 crore may be halved, and the budgets of other departments — including the Heavy Industries and Science and Technology department — may undergo a major cut.

The Planning Commission, which decides the plan size, may have to do away with the Rs. 14,000 crore allocated to it by former finance minister Pranab Mukherjee for bank capitalisation. The finance ministry currently maintains that no fund allocation is required under this head. “Efforts towards achieving fiscal consolidation would result in cuts on public spending in the present revenue stream,” said a senior plan panel official.

Though Parliament had approved a plan size of Rs. 1,000 crore in Budget 2012, government sources said that ministries were not in a position to spend the amount. Also, the finance ministry has made it clear that ministries will not be allowed to indulge in last-minute spending, which results in wasteful expenditure.