Oil worry to help squeeze scheme support in Budget

With an extra Rs 100,000-crore fiscal overshoot expected, slimming recipes on the way.

This year’s Union budget might see a mere five to 10 per cent rise in gross budgetary support (GBS) — the Centre’s assistance for plans — year-on-year and a possible schedule to cut the huge fuel subsidy bill.

Officials say the bloating fuel subsidy bill will be too big to handle by 2013-14 if the trend of administered prices in diesel continues and subsidies on liquefied petroleum gas and kerosene are not rationalised. The government also has to deal with a rising fiscal deficit.

Officials say that as the Centre’s fiscal deficit in 2011-2012 is expected to breach the budget target, the finance ministry’s hands will be tied. The deficit is expected to shoot up by Rs 1,00,000 crore over the budget estimates (BE) of Rs 4.13 lakh crore and settle at 5.6-5.7 per cent of GDP against the projection of 4.6 per cent.

“As such, GBS might see just a five to 10 per cent rise in Budget 2012-13,” an official said. GBS was pegged at Rs 3.35 lakh crore for 2011-12 in the BE, which was 19.57 per cent over the BE of the 2010-12. However, against the revised estimates (RE), it was 12.36 per cent. GBS rose to Rs 2.99 lakh crore in the RE from Rs 2.81 lakh crore in the BE for 2011-12.

A rise in GBS in the range of five to 10 per cent over the budget estimates of this year means the Centre will allocate Rs 3.52 lakh crore to Rs 3.69 lakh crore in the BE of next year. Less growth in GBS means the funds for the Centre’s schemes may not see a huge rise. Schemes such as the MGNREGS, the rural job guarantee, are linked to the inflation index and may get more funding. But some old schemes might not see a huge rise of funding. The B K Chaturvedi panel’s recommendations on pruning central sector schemes (CSS) should come in handy. The panel, whose report was adopted in the last meeting of the National Development Council, has suggested pruning the number of CSS to 51 from 147.

On fuel subsidy, the official said, “The government will have to rationalise its kerosene and LPG subsidies and end that on diesel,else the subsidy burden will go bust by 2013-2014.” He said the oil subsidy was projected at Rs 23,640 crore in the current financial year in the Budget. But, “the under-recoveries of oil companies this year is estimated to be over Rs 1,00,000 crore. In such a scenario, the Budget should target this in an effective manner,” the official said.

The average price for the Indian basket of crude oil in the international market was $110 a barrel this financial year till January 10, against $85 for 2010-11.

Finance minister Pranab Mukherjee had proposed in last year’s Budget speech a task force under Unique Identification Authority of India chairman Nandan Nilekani to suggest ways for direct transfer of the subsidy on kerosene, LPG and fertilisers. The panel has given its report, recommending pilot projects in LPG in selected cities from October. However, these projects are yet to start.

The official said the food subsidy bill was not much of a concern for the government, as the rise would be from Rs 60,000 crore to Rs 100,000 crore and in phases, when the Food Security Bill took effect. In the case of fertiliser subsidy, the increase would be from the budgeted Rs 60,000 crore to Rs 90,000 crore in 2011-2012.