Road map on subsidy cut soon

The finance ministry will soon present a road map for reducing the overall subsidy burden on food, fertilisers and petroleum to the Cabinet Committee of Economic Affairs.

Officials said Prime Minister Manmohan Singh had last week discussed the matter with Finance Secretary Adarsh Kishore.

The ministry is reviewing the Rangarajan committee report on petroleum subsidies while the YK Alagh report on fertilisers is being examined to finalise the third stage of urea price mechanism.

The government has put on hold a revision of petroleum prices pending the review of the Rangarajan committee report.

It is learnt that the finance ministry is finalising its recommendations on slashing subsidies and it will seek political approval for the move.

The Rangarajan committee had favoured removal of subsidy for domestic gas through a one-time increase of Rs 75 per cylinder followed by a gradual phase out of the subsidy. It had also recommended that the subsidy for kerosene should be limited to those below the poverty line.

A report on food subsidies, considered for discussion with stakeholders last year, had recommended decentralisation of procurement, discontinuing open-ended procurement and fixing targets, developing a system of price insurance on the lines of farm income insurance programme without any subsidy allocation and introduction of food coupons to families below the poverty line.

The report had also recommended that reimbursement of costs to the Food Corporation of India should be on the basis of norms rather than on actual basis.

The finance ministry had in December 2004 prepared a paper on "Central government subsidies in India", which stated that central government subsidies amounted to 4.25 per cent in 2002-03 and 4.18 per cent in 2003-04, which was far higher than the subsidy level of 3.49 per cent in 1996-97.

The increase was due to inclusion of petroleum subsidy in the Budget from 2002-03 and an increase in the share of explicit subsidies.