Govt needs to contain prices to cut subsidies

Reiterating the need to contain subsidies through better targeting, Finance Minister Pranab Mukherjee said the government will revisit subsidies which are incompatible with macroeconomic fundamentals and do not reach the intended beneficiaries.

The government plans to take necessary measures to keep petroleum and fertiliser subsidy at a level below the current year’s requirement. He said efforts would be made to keep subsidies under 2% of GDP, bring it to 1.75% over next three years. For 2011-12, it is estimated at nearly 2.34%.

Based on the recommendations of the Nandan Nilekani task force on direct transfer of subsidy, a new mobile-based Fertiliser Management System (mFMS) will be rolled out nationally during 2012 to provide end-to-end information on the movement of fertilisers and subsidies, from the manufacturer to the retail level. Direct transfer of subsidy to the retailer, and eventually to the farmer will be implemented in subsequent phases. This step will reduce expenditure on subsidies by curtailing misuse.

Pointing to the pilot projects on direct cash subsidy transfer in domestic LPG and kerosene oil, Mukherjee said these pilots show that substantial economies in subsidy outgo is possible through Aadhaar platform. The government plans to roll out these Aadhaar enabled payments for various government schemes in 50 selected districts in next six months.”

The revised estimates (RE) under three primary subsidies of food, petroleum and fertiliser for the year 2011-12 saw a jump of over 55% compared to the budget estimates (BE). The RE for these three heads stood at Rs 208,503 crore. The sharpest jump was seen in the petroleum subsidy which rose from Rs 23,640 crore in BE to Rs 68,481 crore in RE. The RE for food and fertiliser are Rs 72,823 crore (against BE of Rs 60,573 crore) and Rs 67,199 crore (Rs 49,998 crore), respectively. Petroleum subsidy rose due to a non-revision in prices of diesel, domestic LPG and kerosene in line with market. Food subsidy increased due to higher grain procurement, increase in minimum support price, bonus, etc. Fertiliser subsidy increased mainly due to higher cost of decontrolled fertilisers and imported urea.

For 2012-12, Rs 43,580 crore is provided towards petroleum subsidy, Rs 75,000 crore towards food and Rs 60,974 crore as fertiliser subsidy. The provision for three major subsidies shows a decline from Rs 208,503 crore in RE of 2011-12 to Rs 179,554 crore in BE of 2012-13.