Move On Subsidy Aimed At Propping Up 9th Plan
The Union government is pushing for a selective reduction in subsidy as a means to extend budgetary support to the ninth plan. This also involves efforts to create public sector savings to support the current years budget.
Central government savings are expected to increase by 1 per cent during the ninth plan period, up from the current years level of 1.8 per cent. The projected reduction in subsidies alone accounts for 0.6 per cent increase in central governments savings. The remaining 0.4 per cent is expected from widening and rationalisation of tax structure.
The governments determination to reduce the burden of subsidies has been factored into the ninth plan approach paper while projecting a 7 per cent growth in gross domestic product. Even in the current years budget, public sector enterprises have been asked to increase internal generation by as much as 24 per cent.
The white paper on subsidies has been prepared by the finance ministry without consultations with the Planning Commission. However, it echoes the concern expressed by finance minister P Chidambaram last December when he opposed the plan panels proposal for a sharp increase in the central budgetary support to the plan.
The governments indecision on cutting subsidies was one of the main reasons why the finance minister had expressed his opposition to Planning Commissions proposal on pegging the Centres budgetary support to the ninth plan at Rs 370,000 crore. In the current years budget, the internal generation of public sector enterprises has been projected at Rs 31,153 crore in the current year, up by Rs 5,904 crore from Rs 25,249 crore last year. This translate into an increase of 24 per cent.
Chidambaram had told a full meeting of the plan panel last December that the government can raise a revenue of Rs 300,000 crore at current prices during the next five years, a minor increase from the budgetary support to the eight plan at current prices works out to Rs 280,000 crore.
Commission members said at the meeting that a higher budgetary support is necessary to achieve a 7 per cent growth in gross domestic product. It has told the finance ministry that the projection of Rs 300,000 crore will result in a lower growth ranging between 6 and 6.5 per cent.
The then Prime Minister, H D Deve Gowda, however, prevailed on him and the approach paper of the ninth plan was passed at different levels the full meeting of the plan panel which met for a second time, the Union cabinet and then the National Development Council.
As the approach paper emphasised the need to cut subsidies as a pre-condition to enhance savings and investments and ultimately realise the governments growth aspirations, its acceptance by
the NDC was a signal for the government to go-ahead with the politically difficult task of reducing subsidies.