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Budget may lower provision for fuel, fertiliser subsidies
January, 21st 2013

The Finance Minister seems to be betting that falling crude oil prices abroad and rising diesel prices at home will together keep the budgeted amount for fuel and fertiliser subsidies in the next fiscal lower than that provided for in Budget 2012-13.

The 2013-14 Budget may provide lower subsidies for fuel and fertiliser, informed sources told Business Line.

This is despite the expectation that the revised estimate for expenditure under this head this fiscal will be much higher than the Budget number.

The Budget is to be presented on February 28.

Announcing the roadmap for fiscal consolidation, the Finance Ministry proposed capping the fiscal deficit at 4.8 per cent of GDP for 2013-14.

Earlier, the then Finance Minister Pranab Mukherkee, while announcing the Budget, had said: “Over the next three years, it (expenditure on subsidies) would be further brought down to 1.75 per cent of GDP. Such a step is needed to improve the quality of public spending.”

According to the Budget estimate, expenditure on central subsidies for 2012-13 is 1.9 per cent of GDP.


A senior government official explained that lowering the fuel subsidy could be easy.

As the Government has authorised oil companies to adjust diesel prices upwards incrementally over a period and sell diesel at market price to bulk buyers, this will save some money.

Although raising the cap on subsidised cylinders will be a drain on funds, that extra burden could be met from a part of the savings on diesel. “So, net-net, there is a lower fuel subsidy,” the official added.


However, the task will not be as simple for fertilisers, another senior Government official admitted, adding that the Fertiliser Ministry’s demand for a special banking arrangement of Rs 25,000 crore to settle subsidy dues for 2012-13 may create a fresh liability next fiscal.

Since borrowings from banks are to be made against fresh receivables from the Government, it has to be seen whether the entire liability is provided for in the next Budget or amortised over the years, the official said.

One option could be providing the money through supplementary demand for grants to be brought at the time of the Budget.

“Until and unless there is scope through non-tax revenues, providing the entire money through revised estimates can easily blow the chance of keeping fiscal deficit under 5.3 per cent,” he said.

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