Subsidy burden becoming unsustainable: FM

Accepting that the fiscal situation looks worse than in the Budget when one takes into account the off-Budget expenditure, Chidambaram said the government had been able to significantly reduce the deficit figures.

"I do not think we should present an alarming picture. Even including off-Budget expenditure, we have been fiscally prudent; we have reduced the fiscal deficit; we have reduced the revenue deficit," he said.

Chidambaram said the United Progressive Alliance (UPA) government had been able to reduce revenue deficit, including the off-Budget expenditure, to 2 per cent in 2007-08, from 3.7 per cent in 2003-04. Similarly, fiscal deficit was reduced to 3.3 per cent in 2007-08 from 4.5 per cent in 2003-04, he said.

According to the Budget calculations, excluding the off-Budget expenditure, the fiscal deficit and revenue deficit for 2007-08 stood at 3.1 per cent and 1.4 per cent, respectively.

However, Chidambaram said in a developing country like India, some subsidies were unavoidable. "Some subsidies are welfare-promoting subsidies. Food subsidies are necessary, fertilizer subsidies are necessary, and fuel has to be subsidised thanks to the relentless rise in fuel prices," he said.

"I agree there are merit subsidies and there are non-merit subsidies. Merit subsidies would have to be continued. As economic situation changes, some subsidies which are non-merit may become merit and some subsidies which are merit subsidies may become non-merit subsidies," he added.

Anticipating that the tax-to-GDP ratio would rise to 13 per cent in 2008-09, Chidambaram said the government had been able to raise this to 12.5 per cent in 2007-08 as against 9.2 per cent in 2003-04. "The improvement in the tax-GDP ratio has been despite cuts in Customs, excise and personal tax rates," he said.

On the fiscal position of states, he said the revenue deficit of most states was close to zero while the fiscal deficit was at 2 per cent. "Only two to three states were facing fiscal distress. The fiscal health of states has never been better," he added.