Finance minister P Chidambaram promises new fiscal plan, tax law changes
October, 09th 2012
Finance minister P Chidambaram on Monday announced the government's intent to draw up a "credible and feasible" fiscal plan, speed up amendments to controversial tax provisions to address investor concerns and push goods and services tax, as part of a fresh set of measures to shore up economic activity.
While ruling out complete withdrawal of food, fuel and fertilizer subsidies, Chidambaram told the annual Economic Editors' conference that the fiscal plan, which will be based on a report by the Vijay Kelkar committee, will look at rationalizing subsidies that could result in further price revision, besides better delivery through means such as direct cash transfers. The plan to be announced shortly will lay the roadmap for lower fiscal and revenue deficits over the next five years, with a beginning to be made this year itself, a move that is being closely watched by the markets and ratings agencies. "It is our intention to take steps in this direction so that subsidies are transferred to the beneficiaries directly, quickly and efficiently. I also visualize huge savings in the subsidies bill," Chidambaram said.
Already, the government has raised diesel price by Rs 5 a litre and capped the availability of subsidized cooking gas as part of its efforts to rein in expenditure, although subsidized fuel is still expected to leave a Rs 1.67 lakh crore hole on the books of state-owned oil marketing companies. There may be a further increase in diesel price since oil firms are losing Rs 11.65 a litre by selling diesel below the prevailing international price. While subsidies may address some of the expenditure-related concerns, Chidambaram said he was hopeful of garnering Rs 40,000 crore from 2G spectrum and Rs 30,000 crore from disinvestment, which is expected to kick off with the stake sale in Rashtriya Ispat Nigam Ltd. A large subsidy bill is one of the biggest concerns for ratings agencies, which have threatened to downgrade India to junk grade if the government does not take immediate steps to reverse the trend.