`Some subsidies are unavoidable`

OPINION: P Chidambaram

Speaker: There are no cut motions either, probably only one cut motion is there.

P Chidambaram: I was referring only to the amendments, cut motions are a different matter. Cut motions are really to make another point, not the point regarding the content of the Finance Bill.

Speaker: That is right.

P Chidambaram: There are none of that either.

 

There was a mention that Budget and off-Budget subsidies are rising. It is true that subsidies are rising, but that is a decision that all of us have to take collectively. I believe that in a developing country some subsidies are unavoidable. In fact, some subsidies are welfare promoting subsidies. Food subsidies are necessary; fertiliser subsidies are necessary; and fuel has to be subsidised thanks to the relentless rise in fuel prices.

The subsidy bill is large. In fact, the bill of all subsidies taken together is reaching a point where it may become unsustainable. The current Budget cannot bear the entire burden of all subsidies, and some of this burden has to be deferred. This is not the first time that we are deferring the current expenditure. In fact, off-Budget expenditure has been a practice for many years. If you take it to the Budget, it does make the fiscal deficit ratio and the revenue deficit ratio worse than what it appears on the Budget. Nevertheless, let me say that the record of this government in containing fiscal deficit and revenue deficit is unexceptional.

I can read both figures, that is, without the off-Budget expenditure and including the off-Budget expenditure. In 2007-2008, without the off-Budget expenditure, the revenue deficit came down to 1.4 per cent and the fiscal deficit to 3.1 per cent. Please remember that we inherited a revenue deficit of 3.6 per cent, and we have reduced it to 1.4 per cent. We inherited a fiscal deficit of 4.5 per cent, and we have reduced it to 3.1 per cent. This year, we will reduce the revenue deficit to 1 per cent and the fiscal deficit to 2.5 per cent.

If we account the off-Budget expenditure, in 2003-2004, the then government did incur off-Budget expenditure and I can give the numbers. In 2003-2004, including the off-Budget expenditure, the revenue deficit was 3.7 per cent, and in 2007-2008, it was reduced to 2 per cent. Likewise, the fiscal deficit in 2003-2004 was 4.5 per cent, and in 2007-2008, it was reduced to 3.3 per cent.

So, 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. Of course, it is worse than what the Budget papers disclose, but we must collectively compliment ourselves that with sound fiscal management and fiscal prudence we have been able to reduce the fiscal deficit and the revenue deficit.

This off-Budget expenditure would, of course, have to be met in succeeding years. We are issuing bonds. These bonds are to be redeemed by us, our children. Therefore, at some point of time we would have to take a view of how much subsidies we can bear and how the subsidy should be prioritised. 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. But there is only a certain burden that the Budget can bear. That is why many of these expenditures are supported by bonds. This was so in previous governments also. This is not a new practice of this government. But that is something which is inevitable given the fact that many expenditures have risen sharply and the Budget cannot bear the expenditure today. Therefore, bonds have to be issued.

(Excerpts from Finance Minister P Chidambaram's reply to the debate on the Finance Bill, 2008, in the Lok Sabha on April 29)