Subsidy growth to be flat, easing way to deficit target

Dec 10 2012, 03:51 IST
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SummaryThe Centre’s subsidy burden during 2012-13 could turn out to be much less than what many thought, helping finance minister P Chidambaram in his plan to restrict the fiscal deficit to 5.3% of the gross domestic product.

The Centre’s subsidy burden during 2012-13 could turn out to be much less than what many thought, helping finance minister P Chidambaram in his plan to restrict the fiscal deficit to 5.3% of the gross domestic product (GDP).

The Controller General of Accounts’ (CGA) provisional estimate of the Centre’s accounts for 2011-12, published at the beginning of 2012, revealed that actual payments towards the three major subsidies — oil, fertiliser and food — were a whopping 30% less than the revised estimate (RE) in the Budget presented in March. The CGA’s provisional account conventionally gives the first peek into the actual inflows and outflows in the preceding year, after the approximation done in the RE.

Although the finance ministry’s monthly economic report (MER) released in May also cited the CGA’s account, few analysts seem to have noticed the big gap between the actual spending on subsidies and the RE.

What the CGA said is only R1,46,951 crore was paid towards the three major subsidies in 2011-12, against the RE of R2,08,503 crore and R1,64,516 crore (actuals) in 2010-11. In other words, the finance ministry, then headed by Pranab Mukherjee, did not expend R61,552 crore of the amount shown in the RE on subsidies although this estimate is supposed to be arrived at with full knowledge of what has been (going to be) spent in the year concerned. A good part of this liability has been liquidated in the first half of FY13 — part reason for the annual increase of 89% in the first-half subsidy expenditure (MER October) to R1,41,903 crore.

This is good news for Chidambaram, who returned to the finance ministry in August, because it implies that contrary to popular notion, the subsidy claims haven’t ballooned this year. It has remained more or less at the same level as the corresponding period last year in the first half. It would therefore be reasonable, rather than unduly hopeful, to assume that the expenditure on the major subsidies in the second half can be restricted closer to R75,000 crore (actuals of H1 last year) than R1.4 lakh crore disbursed in the first half of this year. What buttresses this notion is that the global demand outlook remains subdued for most commodities including crude, fertiliser inputs and vegetable oil and, so, their prices are unlikely to flare up in the second half of this fiscal and push up subsidy claims.

Which means the 2012-13 budget estimate

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