Raise petro product prices

The Kelkar committee has asked the government to gradually raise the prices of petroleum products and urea. It also wanted increases in the price of food items sold through ration shops and stopping sale of sugar through the Public Distribution System.

Arvind Mayaram, the government’s economic affairs secretary, said,"The government is of the view that in a developing country where a significant proportion of the population is poor, a certain level of subsidies is necessary and unavoidable, and measures must be taken to protect the poor and vulnerable sections of the society."

He said the government had not yet taken a view on the report or any of its recommendations.

Revising urea prices regularly in subsequent years to close the wide gap with phosphatic and potassic (P and K) fertilisers, fully deregulating diesel prices by the start of 2014-15 and regular revisions in the prices of kerosene and cooking gas are among the important recommendations of the expert committee to keep subsidy levels affordable.

The panel said half of the diesel subsidies should be eliminated in the current financial year and the other half in the next one. The recommendations also include immediately increasing the price of diesel by Rs 4 a litre (this came before the recent Rs 5 a litre rise), kerosene by Rs 2 a litre and of LPG by Rs 50 a cylinder. Plus, “smaller and more frequent price revisions” in the future.

On food subsidy, the recommendation is to increase the prices of items sold through ration shops every time the Minimum Support Price for crops is revised.

On the Food Security Bill, expected to add at least Rs 20,000 crore a year to government expenses, the panel wants the programme “appropriately phased”, taking into account the fiscal challenges.

Subsidies on oil, fertiliser and food constitute 90 per cent of the total borne by the government.

It also wanted removal of the system of selling sugar through ration shops, saying it amounted to only a tenth of total national consumption.

Also advocating direct transfer of subsidies, the panel said: “Government also needs to initiate measures to direct the subsidies to the beneficiary. Even with reduced budgetary allocations, it may be possible to leverage full benefits by proper targeting.”

The committee proposed a schedule to bring down the subsidy level from 2.5 per cent of GDP in 2011-12 to 1.7 per cent and 1.5 per cent of GDP in the years 2013-14 and 2014-15, respectively.

“It was planned in 2012-13 to contain subsidies within two per cent of GDP. However, with the depreciating rupee and oil prices in international market remaining sticky, subsidies are projected to rise to 2.6 per cent of GDP,” it noted.