BJP activists shout anti-government slogans against the hike in fuel prices in Mumbai on Thursday. (AFP)

New Delhi, June 5: The Centre today asked all ministries and departments to tighten their belts for an austerity ride, a day after it jacked up oil prices.

Prime Minister Manmohan Singh wrote to his cabinet colleagues urging them to “severely curtail” expenses on air travel, particularly on foreign trips, and undertake them only when “it is absolutely necessary”.

The finance ministry followed it up in the evening with a directive to cut “non-essential expenses”, like those on overtime, travel, hiring professionals and ads by 10 per cent and non-plan expenses by 5 per cent. It was made clear that no extra expenses would be allowed in any scheme.

“We have also asked all departments to refrain from starting new schemes... this is a phase of consolidation and they should spend only on programmes which have been sanctioned,” said expenditure secretary Sushma Nath.

Events at five-star hotels, not unusual for government departments to sponsor, will not be paid for.

Nath, who sent the austerity note to ministries, asked them to take advantage of the competition among airlines to grab discounted fares. “Discipline in fiscal transfers to states, public sector companies and autonomous bodies should be ensured,” she said in the note.

The Prime Minister stressed that the austerity drive was necessary to cope with the huge burden on financial resources imposed by the increase in global oil prices.

Nath admitted that the cuts ordered today would “not save much money but would bring in a mood of austerity”.

Back-of-the-envelope calculations show the moves could yield savings of Rs 5,000-6,000 crore, a tiny fraction of the Rs 94,000-crore oil bonds the government plans to issue to state-run petroleum retailers to partly cover the gap between global crude costs and pump prices.

Monthly spending reviews are planned, as are quarterly meetings between the “problem ministries”, those unable to cut spending, and the Union cabinet secretary.

In his letter, the Prime Minister said there was “substantial scope” for reducing expenditure on administration. “As we ask people to bear some of the burden of our oil imports, it is not only necessary from the resource conservation point of view but also a moral duty to cut all wasteful expenditure in our own establishments.”

Officials recalled having been handed similar austerity prescriptions in the past, but usually in the second half of a financial year. This time, the cuts have been ordered earlier because of advice from publicity managers that ostentatious spending in the face of middle-class woes would show the government in poor light.

The Prime Minster also asked ministers to explain to people the “constraints and reasons” that forced the increase in oil prices.

Nath said the rising food and petroleum subsidies as well as large welfare plans, like the rural employment scheme, were driving up the government’s overall spending.

Economists have warned the budgeted fiscal deficit of 2.5 per cent for 2008-09 could shoot up 1.5 per cent to 2 per cent because of expenses like the Rs 71,680-crore farm loan waivers and the pay h ike for central employees slated to come into effect later this financial year.