Kelkar Panel recommends govt to bite bullet on subsidies

Says fiscal deficit could be reined in At 5.2% of GDP, warns it could widen to 6.1%

Doubting Budget figures for 2012-13, the Vijay Kelkar Committee in its report made public today  recommended to the government to prune its subsidies, check even plan expenditure, raise at least Rs 30,000 crore from disinvestment and shore up tax-GDP ratio so that the Centre’s fiscal deficit could be reined in at 5.2 per cent of GDP for the current financial year. 

Otherwise, the committee warned that fiscal deficit would reach 6.1 per cent of GDP against the Budget estimates of 5.1 per cent. It said the Budget had overestimated tax receipts by Rs 60,000 crore and underestimated subsidies by Rs 70,000 crore.  

With Food Security Bill in mind, the Government was quick to distance itself from the committee's recommendations on subsidies. "Some recommendations appear contrary to the declared objective of the government of sustained and inclusive growth," Economic Affairs Secretary Arvind Mayaram told reporters. 

The committee recommended implementing the proposed Food Security Bill in phases. Mayaram said,"the government has reiterated its intention to implement the promise of food security for all."

The panel wanted the government to increase the prices of food items sold through ration shops, every time the minimum support price is revised. Besides,  it recommended  removing the system of selling the sweetener through the ration shops.

The committee suggested immediately increasing the diesel prices by Rs four a litre, kerosene by Rs 2 a litre and LPG by Rs 50 per cylinder. These steps, would reduce under-recoveries of oil marketing companies by Rs 20,000 crore, it said. However, the government’s recent steps would themselves reduce underrecoveries by Rs 20,300 crore, according to estimates of analysts.

The committee further recommended regular raising of diesel prices until it becomes completely deregulated, and keeping subsidy at affordable level on LPG and kerosene.

The Kelkar panel fovoured a proposal to increase the MRP of Urea by 10 per cent during the first year with any further increase being limited to any increase in the pooled gas price and in fixed

The panel also wanted the government to save additional Rs 20,000 crore in plan expenditure through proper prioritization and efficient use of available resources.

On tax front, the panel wanted the government to review Direct Taxes Code Bill as it would result in slippages for which there is no fiscal space. Besides, it wanted the Finance Ministry to tone up its tax administration.

On indirect tax front, the panel recommended reducing standard deduction rate from 12 per cent to eight per cent in phases, pruning the list of 6 per cent excise duty to merit goods only etc.

The Kelkar panel recommended the government to at least garner Rs 30,000 crore from disinvestment by making offer for sale model attractive and using exchange traded model for securities held by it in public sector units.  It also wanted the government to set up a group to suggest monetising government's land resources.

The panel said if steps suggested by it are undertaken, the Centre may be able to cap its fiscal deficit at 4.6 per cent of GDP in the next financial year and 3.9 per cent in 2014-15.