12th plan approach paper to target subsidies

To press for more spends towards development activities.

The approach paper to the 12th five-year plan (2012-13 to 2016-17) will be posing the issue of a trade-off between outgo on subsidies and development expenditure, given revenue projections and the road map for controlling the fiscal deficit. To be ready by this month-end or early next month, it will suggest measures to reduce subsidies and press for channelising these towards development activities.

“It’s a choice between higher subsidies or better development work. So, the paper will specifically highlight this,” a senior member of the Planning Commission actively involved in the process of preparing the approach paper told Business Standard.

He said reductions in subsidies over the next five years would generate significant revenue, which could then be used for developmental activities. Officials didn’t give specific numbers. For one thing, form part of non-plan expenditure and are not under the Commission’s domain.

Subsidies are projected to rise by 23.5 per cent in 2010-11 to Rs 1.43 lakh crore from Rs 1.16 lakh crore in the budget estimates of last year. However, if compared to the revised estimates of last year, they are estimated to fall by 12.5 per cent from Rs 1.64 lakh crore.

About 94 per cent of all subsidies comprise food, fertiliser and petroleum subsidy. About Rs 23,000 crore is subsidy provided for oil marketing companies (OMCs) and have already been taken on the books of these firms for dues from last year. Despite raising of petroleum product prices and reduction in duties, the OMCs are estimated to face under- recoveries of Rs 1.20 lakh crore this year.

Earlier, Planning Commission member Saumitra Chaudhuri had told Business Standard that the approach paper would outline a comprehensive map for cash transfer of food, fertiliser and fuel subsidies, using Aadhar-based identification and ‘smart’ cards, with recharging facilities.

The idea was to initially start the exercise with cash transfer of fuel subsidy through a smart card, which could be recharged every month, according to the entitlement of the beneficiary. This could be later extended to food and fertiliser.

The Commission’s research says tax revenues of the Centre (net of state devolution) are estimated to rise to 8.4 per cent of GDP in the 12th plan from 7.7 per cent in the ongoing one (2007-08 to 2011-12). In the terminal year of the next plan, this percentage will rise to 9.1 per cent from 7.4 per cent in this year.

However, non-tax revenues, including from disinvestment, are projected to fall to 1.6 per cent of GDP in the plan from 2.4 per cent in the ongoing one. Similarly, non-plan expenditure (of which subsidy is a part) is projected to decline from eight per cent of GDP in the next plan from 10.3 per cent in this one. The fiscal deficit is also supposed to decline from 4.9 per cent of GDP in this plan to 3.3 per cent in the next.