Vajpayee Clears Subsidy Cuts

The government has taken an in-principle decision to prune subsidies, both explicit and implicit, and to initiate the move in the Union budget for 2000-01. This decision was taken last week at a high-level meeting convened by Prime Minister A B Vajpayee and attended by finance minister Yashwant Sinha, among others.

The government is considering a range of options in this regard, including floating a special fund to which states will be allowed access if they bring the user charges of various utility services in line with economic costs.

Disclosing this, senior officials said the political establishment fully supported the fiscal initiatives proposed in the budget.

 

Sources said the government was considering launching an ambitious and front-loaded medium-term fiscal adjustment programme, involving action by both the Centre and states.

"Sufficient indication in this regard is available. Take the decision to prune the interest rates on small savings. The hike in LPG and kerosene prices slated for next week should be another affirmation in this regard," sources said.

The finance ministry is facing an uphill task this year in containing the fiscal deficit within the targeted level of 4 per cent of gross domestic product. A shortfall in receipts together with excess spending on account of the Kargil conflict (Rs 2,300 crore) and subsidies is expected to result in the fiscal deficit topping 5 per cent.

The shortfall in receipts is largely due to the poor performance on divestment. Compared with the target of Rs 10,000 crore, the government is expected to net only about Rs 2,000 crore.

On the revenue side, collections are expected to fall short by about Rs 2,000 crore compared with the target of Rs 173,000 crore. While excise and direct tax collections are expected to be on target, the finance ministry is expecting a shortfall of Rs 2,000 crore under customs receipts. Excess spending under the head of defence (including Kargil related expenditure), according to sources was about Rs 6,000-7,000 crore. As compared to the budgeted expenditure of Rs 45,694 crore, the government at the end of January 15 had spent Rs 42,000 crore. Spending by way of subsidies at the end of January aggregated Rs 24,000 crore as compared to the budgeted level of Rs 23,838 crore.