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Friday, March 16, 2012

SWISH OF S-WORD Subsidy bullet on lips, PM to consult allies R. SURYAMURTHY

http://www.telegraphindia.com/1120317/jsp/business/story_15261548.jsp 

SWISH OF S-WORD 
Subsidy bullet on lips, PM to consult allies

New Delhi, March 16: Diesel prices could go up while domestic LPG cylinder and kerosene could be sold at subsidised rates to targeted consumers as the government plans to slash its bloated subsidy bill.

The Centre today said it had taken an in-principle decision to raise diesel prices but hadn't decided when to implement it because world crude rates were hovering at very high prices — above $125 a barrel.

"We have to bite the bullet. There is no other way in which you can reduce subsidies," Prime Minister Manmohan Singh said, hinting that the government is keen to take some hard decisions.

The task before the government is to put forward "an effective programme for adjusting the prices of petroleum products, and adjusting other relevant prices," he said.

The government has pegged its outgo on food, fuel and fertiliser subsidies in the 2012-13 fiscal at over Rs 1.79 lakh crore, nearly 14 per cent lower than the revised estimates for the current fiscal.

The biggest cut was in petroleum subsidies, which was pared to Rs 43,580 crore from a revised estimate of Rs 68,481 crore in 2011-12, a sharp decline of 36.4 per cent.

Some experts think Mukherjee has not budgeted anything for petroleum subsidy in 2012-13. Although the expenditure budget has an entry of Rs 43,580 crore, the Centre will have to pay around Rs 40,000 crore to oil companies once their last quarter results for 2011-12 come in.

"As the payment will be made in the next fiscal year, the finance minister has budgeted this year's payout obligation in next year's allocation," said an analyst.

The remaining Rs 3,580 crore is meant for Northeast-related allocation, which he had made in the last budget as well.

Fertiliser subsidies were also cut by Rs 6,225 crore to Rs 60,974 crore next year against Rs 67,199 crore in the current fiscal.

Mukherjee fixed the food subsidy at Rs 75,000 crore, a small Rs 2,177 crore increase over Rs 72,823 crore.

By cutting down the subsidy bill, he plans to bring down the ballooning fiscal deficit to

5.1 per cent of GDP in 2012-13 from 5.9 per cent in the current fiscal.

According to the budget proposals, the government's subsidy bill on food, petroleum and fertilisers is estimated at Rs 179,554 crore for the 2012-13 fiscal against Rs 208,503 crore in the revised estimates for this fiscal.

Interestingly, the revised estimate for this fiscal is higher by 55 per cent compared with the budget estimate of nearly Rs 134,211 crore.

Reducing subsidies may pose a problem for the UPA that now depends on regional allies, including the Trinamul Congress, with various populist agendas.

"Well, I think these are compulsions of managing a coalition. There will be difficulties. There have been difficulties. But ultimately, if the government is to govern, it must have a sustainable strategy for managing the economy. I sincerely hope, when the time comes to take relevant important decisions which are tough, we will consult all our allies and take them on board," the Prime Minister said.

Perhaps, the government plans to go with the partial de-regulation of diesel prices by fixing a per litre subsidy from the government — a radical suggestion that was made in the economic survey.

"For every litre of diesel sold by an oil marketing company, the government will give fixed subsidy of certain number of rupees," it said. The subsidy should be pre-specified so that, thereafter, the government stays fully out of the picture, the survey said.


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