Demand To Do Away With Open-Ended Subsidies

The main issue that needs to be tackled in the Union Budget for 2000-2001 is the open-ended nature of subsidies.

According to sources in the Planning Commission, one of the main problems that must be addressed is the burgeoning subsidy bill.

It is argued that the total quantum of subsidies that can be offered under each head must be decided by the government and the prices adjusted and offered at this level.

For instance, the government must finalise the total food subsidy amount and accordingly price the sugar, rice and wheat available through the public distribution system. This will make the subsidy close-ended.

 

Sources also pointed out that it is not the quantum of cuts on the subsidy which is important but ensuring that it reaches the right target.

They pointed out that the finance ministry needs to effect a correction with respect to the fertiliser subsidy where the excessive application of nitrogenous fertiliers is leading to large portions of Haryana and Punjab turning into wastelands.

"This, however, does not mean that fertiliser subsidy is bad per se", explained an official.

Senior government officials said that the main concern remains on the expenditure side and that taxes in general do not need to be tinkered with.

It is argued that "while a marginal rationalisation of taxes is needed, it need not be done this year since every year when tax rates are changed there is a cost to this. It is better for the finance minister to concentrate on tax administration rather than the rates this year".

If tax rates are stable, then the focus can be on administration of taxes. It is argued that low revenues are due to poor tax administration.

It was also argued that while it is not necessary to cut the peak customs rate, the surcharge needs to be removed.

On the excise side, sources said that the Planning Commission had pointed out to the finance ministry that huge misuse of modvat has to be plugged. Sources said that the total modvat offset had shot up from 22 per cent to 42 per cent of gross excise in three years.

"There is no explanation for this. If this misuse is plugged and the offset is around 25-26 per cent of gross excise, excise collections will zoom", said sources.