India Announces Austerity Measures

India Friday announced a set of austerity measures in a desperate attempt to prop up economy and to instill investor confidence.

According to the new guidelines announced by Finance Minister Pranab Mukherjee, there will be a clamp down on government expenditure. The measures include total ban on vehicle purchase by the government, curbs on conducting workshops and seminars in five star hotels with state funds and restrictions on foreign trips by officials.

The measures have come as the government is struggling to control the country's widening fiscal and current deficit amid a volatile rupee that has touched a record low against the dollar and weak markets.

The overall economic sentiment remains damp as inflation has been increasing steadily while investments have dropped. The euro zone crisis and the global economic slowdown also have dragged the Indian economy down.

India's Whole Price Index (WPI) and Consumer Price Index (CPI) increased in April signaling the need for immediate government intervention. The WPI climbed to 7.23 percent in April from 6.89 percent in March while the CPI increased to 10.36 percent in April from 9.38 percent in March.

The inflationary pressures have restricted the Reserve Bank of India from going ahead with further rate cuts. The situation also demanded some kind of an action from the government to consolidate the financial situation.

Unless and until there is a credible fiscal consolidation plan by the government, the inflationary pressures are likely to ensure that RBI will remain in a wait and watch mode before reducing rates again, a livemint.com report said.

Speaking to Parliament Thursday, the Finance Minister said: I am going to take a little bit of unpopular steps and going to issue some austerity measures.

Though the austerity measures announced Friday targets general government expenditure, officials indicate that they will cover government spending on welfare schemes as well.

The austerity drive would be divided into two parts. First there would be a cut in establishment expenses, and then there could be some cut in the scheme wise expenses as well, PTI reported quoting official sources.

Earlier, the UPA government adopted an austerity drive in 2009 when the government had put a cap on overseas travel by Member of Parliament and ministers, besides asking officials to fly economy class, a Zee News report said.