Govt curbs subsidy to tackle fiscal deficit

Reduces subsidies on fuel and fertilisers to bring down fiscal deficit to 4.8 of GDP from 5.2

The 11 per cent reduction in major subsidy to a little over Rs 2.2 lakh crore has been panned by rating agencies as less than required.

Finance Minister P Chidambaram has pegged a good part of his fiscal deficit reduction plan from 5.2 per cent to 4.8 per cent on cutting back oil and fertiliser subsidies. The Budget has reduced major subsidies on fuel,fertilisers to Rs 2,20,971 crore in 2013-14 fiscal compared to Rs 2,47,853 crore in the revised estimates for the current financial year.

However,the revised estimates for this financial year are up by 37 per cent as compared to the Budget Estimate of Rs 1,79,554 crore. The subsidies given to the state-run oil marketing firms for selling diesel,domestic LPG and kerosene through the public distribution system PDS at lower cost has been estimated at Rs 65,000 crore for next fiscal against the revised estimate of Rs 96,880 crore in 2012-13. Both food and fertiliser subsidies will be last to be transfered through the Direct Benefit Transfer scheme.

In an assessment of the move Samp;P reported that India is still vulnerable to spikes in oil and other commodity prices. Although the government allowed a gradual increase in diesel prices earlier this year,the timing and the extent of such increases are uncertain.

The Budget papers said,Decrease is mainly due to less requirement for compensation to oil companies for under recoveries.The food subsidy given to run the PDS is estimated to rise to Rs 90,000 crore next fiscal from the RE of Rs 85,000 crore in 2012-13.

Chidambaram announced an outlay of Rs 10,000 crore for 2013-14 as the incremental cost of food security over and above the food subsidy,while hoping that Parliament would pass the Food Security Bill,saying food security is as much a basic human right as the right to education.

Increase food subsidy is mainly towards provision for national food security, notes the Budget document. According to the Economic Survey 2012-13,food subsidy has been growing at an average annual rate of over 24 per cent for the last few years,of which a bulk was accounted for by PDS. The fertiliser subsidy has also been pegged slightly lower at Rs 65,971.50 crore in 2013-14,as against the revised estimates of Rs 65,974 crore in 2012-13.