Jaitley hints at subsidy curbs to rein in deficit

01 August 2014

Finance Minister Arun JaitleyThe centre will rationalise subsidies to ensure that only the deserving benefit from them and that the subsidy bill is kept in check, which, according to finance minister Arun Jaitley, will be one of the major tasks before the expenditure management commission that will be set up in the coming days (See: Expenditure management panel in offing, Jaitley tells House).

Jaitley informed Lok Sabha on Friday that government is determined to rationalise subsidies so as to ensure that only the vulnerable sections get its benefits.

Without proper curbs on expenditure, he said, India's fiscal deficit target for the current fiscal year will be a "daunting" task.

Jaitley, in his budget, had promised to narrow the country's fiscal deficit to 4.1 per cent of gross domestic product in the year to March 2015 from 4.5 per cent in the previous financial year.

The finance minister said in view the importance of keeping fiscal deficits under control, the government proposes to bring down major subsidies from 2.2 per cent of GDP in 2013-14 (revised estimates) to 2.03 per cent of the GDP in 2014-15 (budget estimates).

"With active policy measures / reforms of the government to contain fiscal deficit and quantum of subsidy bill it is expected that the subsidy will progressively reduce. It is proposed to keep the subsidy level at 1.7 per cent and 1.6 per cent of GDP in 2015-16 and 2016-17 respectively," he stated in a written reply.

Economists have, meanwhile, dubbed the deficit target rather optimistic, citing weak tax receipts in a sluggish economy and high government expenditure commitments.

To a supplementary on the need to improve tax collections and recovering pending tax dues instead of slashing subsidies to improve the fiscal deficit, Jaitley said fiscal deficit is a situation which is reached when government's expenditures go out of control and there is no rise in revenue.

He said taxation has to be rationalised to make Indian products competitive. He said better saleability of products would mean increase in growth which would lead to larger revenue.

The finance minister said the present government is clear that increased taxes lead to sluggish economy.

Responding to another supplementary as to whether government will pass on to the consumers the hike in urea prices after the price of natural gas is raised, he said the question is based on a "hypothetical premise".

The new government is considering whether to increase gas prices and the decision it takes will be informed to the House, he said.

On providing subsidies or free power supply to farmers, he said, a government can spend within its means. If it borrows to spend, the next generation will have to repay the debts. Debts, he said, means more taxes.

He said since electricity is a state subject, states which can afford can give subsidy.

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