Subsidy cut high on PM's new year agenda

Says fiscal consolidation a must for economic security.

In what could be a pointer to the upcoming 2012-13 Budget, Prime Minister Manmohan Singh on Saturday said since the government was running out of fiscal space, there was need for subsidy cuts in all areas apart from food.

“I am concerned about the fiscal stability in future because our fiscal deficit has worsened in the past three years,” he said in his new year message to the nation, adding that this was mainly because of the government’s decision to allow a larger fiscal deficit in 2009-10 to counter the global economic slowdown.

Pointing out that it was the right policy at that time, the prime minister stressed, like other countries that resorted to this strategy, “we have run out of fiscal space and must once again begin the process of fiscal consolidation”.

He said this was important to ensure that the country’s growth process was not jeopardised.

Singh has identified the introduction of Goods and Services Tax (GST) as the most important step for restoring fiscal stability in the medium term.

“Another important step is a phased reduction in subsidies. Some, such as food subsidies, are justifiable on social grounds and are expected to expand once the Food Security Act becomes operational. But, there are other subsidies that are not, and these must be contained,” he said.

The government’s total budgeted subsidy bill in 2011-12 is Rs 1,43,569.67 crore. Of this, food subsidy accounts for Rs 60,572.98 crore.

The total subsidy bill for 2011-12, however, has taken only Rs 23,640 crore into account for petroleum. This will be substantially higher in the current financial year, as underrecoveries of oil marketing companies is expected to be more than Rs 1,25,000 crore.

Greeting people on the eve of New Year, the prime minister identified five key challenges facing the country. These include the economic security, for which he outlined fiscal slippage as the main concern.

Livelihood security, which includes education, food, health and employment; energy security; ecological security and national security are the other challenges he outlined.

To ensure energy security, Singh said expanding new investment and achieving energy efficiency required a more rational pricing policy, aligning India’s energy prices with global prices.

“This cannot be done immediately, but we need to outline a phased programme for such adjustment and then work to develop support for making the transition,” he said.

Mentioning that 2011 was a very difficult year for the world and India had its share of problems, the prime minster said: “We must not be too downcast at these events. All countries and economies go through cycles, We must remember that downturns are followed by upturns”.