Approach paper to 12th Plan will target subsidies, meeting tomorrow

As the government grapples to keep the fiscal deficit within manageable limits, the Planning Commission is likely to recommend a freeze or cut-down on the subsidies as a percentage of the GDP at their current levels, instead focus on their better targeting.

A meeting of the full Planning Commission will take place under the chairmanship of Prime Minister Manmohan Singh on Saturday to finalise the approach paper to the 12th five year plan, which will start from next fiscal. The document then goes to the Cabinet and subsequently to the National Development Council (NDC) for approval.

Officials said the approach paper could also recommend a strong framework for cash transfer of subsidies to the targeted beneficiaries. It is likely to outline a roadmap for the transfer of cash subsidies for fuel, fertiliser and food. The government currently incurs bulk of their subsidies on distribution of these three items.

As per the union budget of 2011-12, the government’s total subsidy bill is projected to be around Rs 1,43,570 crore, up 23.5 per cent from the budget estimates of the previous fiscal.

However, this provisioning was 12.5 per cent less than the revised budget estimates for the year on expectations of lower global crude oil prices and decontrol of diesel. The projected subsidies is pegged at 1.6 per cent of estimated GDP this fiscal. However, actual numbers could vary depending on subsidies level and GDP figures.

Capping the subsidies as a percentage of GDP at their current levels will be a Herculean task for the government as rising global crude oil prices and its obligation to roll out the food security act will continue to put added pressure. Subsidies comes under the non-plan expenditure; thus the Planning Commission’s role can at best be recommendatory.

A senior Planning Commission official also said health sector reforms would be a key part of the approach paper. “The main focus of the 12th plan will be on health and health sector reforms. It does not to mean that other sectors won’t get their due attention,” he said.

The Planning Commission is also expected to peg the average annual GDP growth for the 12th plan period (which starts from 2012-2013 fiscal) at 9 per cent, but will stress that it will require much efforts to realise the target. In its presentation made to the earlier full planning commission meeting in April, the Commission had pegged the average annual growth rate at 9-9.5 per cent. It had also projected a 5 per cent annual growth in subsidies.

Last week, minister of state for planning Ashwani Kumar announced the revision of the 12th five year plan growth target to around 8.6-8.7 per cent from the earlier anticipated 9-9.5 per cent, considering the uncertain global economic conditions.