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Subsidies put fiscal deficit target under strain

The problem is compounded by lower tax revenues and disinvestment targets falling below expectations.

Written by Surabhi | New Delhi |
November 25, 2013 5:08:51 am

The Centre’s fiscal deficit target of 4.8 per cent of the gross domestic product (GDP) in 2013-14 seems to be coming under severe strain with the subsidy bill likely to shoot up much beyond expectations while tax revenues and proceeds from disinvestment may fall below expectations.

The top most concern is the oil subsidy bill,according to a senior official,who said that it could be at least Rs 80,000 crore higher than estimated this fiscal. “There is talk of a hike in diesel price deregulation. It is a political call. Hard measures need to be taken or there has to be a windfall like that from the spectrum auctions in the past. We are trying to keep the deficit at the targeted level,” the official said.

The finance ministry is also debating further expenditure cuts to improve the government’s balance sheet but is concerned about its impact on growth. It had,in September, announced a fresh set of austerity measures to restrict non-plan expenditure but has refrained from severe cuts like those imposed last fiscal.

While Budget 2013-14,had allocated Rs 65,000 crore towards fuel subsidy,the government has already paid Rs 45,000 crore from this to oil marketing companies (OMCs) for under recoveries from the previous fiscal.

In contrast,OMCs have reported under recoveries at Rs 60,907 crore between April and September 2013 on sale of subsidised diesel,kerosene and cooking gas.

Ratings agency Fitch had recently pegged the total under recoveries in 2013-14 at Rs 1,40,000 crore.

The Budget had pegged the fertiliser subsidy bill in 2013-14 at Rs 65,971.50 crore and the food subsidy was estimated at Rs 90,000 crore.

“The sharp depreciation in the rupee in July and August this year has deteriorated the oil subsidy bill. Coming at a time when tax revenue is also not rising at expected rates,it will have an impact on the fiscal deficit,” said Devendra Kumar Pant,chief economist,India Ratings.

The government’s stake sale programme for the fiscal that includes disinvestment in blue chip PSUs including Coal India and Indian Oil Corporation has also been under a cloud due to choppy market conditions and a volatile currency. Of the Rs 40,000 crore targeted,it has generated just Rs 1,323 crore.

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