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When the next government at the Centre presents its first full budget, it will certainly look at the numbers given in the interim budget in the backdrop of the findings like that of the independent evaluation office (IEO) which has detected the government spends R3.56 for delivering food worth R1, and the leakages in the public distribution system (PDS) is still as high as 40%. Clearly, in the absence of a workable roadmap, medium-term subsidy control projections—and in turn, reining in fiscal deficit—are just a pipe dream.
Even though the expenditure on almost everything has been cut in FY14 to keep the fiscal deficit at 4.6% of GDP in the interim budget, the subsidy bill for the year has been revised upwards to R2,45,452 crore from the budget estimate of R2,20,972 crore.
The revenue projections for FY15 look as unrealistic as they were in FY14, evident from the huge R76,965 crore shortfall. So, finance minister P Chidambaram has done the right thing by outlining the task for curtailing subsidies in the medium-term fiscal policy statement. For FY15, the major subsidies’ burden has been kept almost same as that of FY14, at R2,46,397 crore. This means, it will decrease from 2.2% of GDP to 1.9%. And from there, policy reforms and better targetting are supposed to bring it down to 1.8% in FY16 and 1.6% in FY17. How will this happen? The two main tools targeted are price increase, already being done in case of diesel, and Aadhaar-based direct benefit transfers (DBT). The DBT scheme in LPG subsidy disbursal, currently on hold, has shown that it is possible to curb leakages through Aadhaar identification. More than R2,500 crore were transferred to the LPG consumers' bank accounts before it was stopped on January 30. Considering the leakages even on conservative estimates have been projected at 40%, there is no doubt that Aadhaar-based transfers can play a major role in bringing down the subsidy burden going ahead. This seems increasingly possible given that Aadhaar enrolment stands at nearly 59 crore at the last count and is moving ahead at a rapid pace—over 30 million added every month.
On the price increase side, major work has to be done in oil and fertiliser subsidies. And in petroleum, the major part of the subsidy increase in FY14 is on this count from R65,000 crore in the budget estimate to R85,480 crore in the RE, diesel price