Budget 2013: How hard will Chidambaram bite subsidy bullet?

How far can Finance Minister P Chidambaram cut unproductive expenditure this year? This is one of the key concerns experts have been asking in the run up to the Budget 2013.

In a country like India, while it may be difficult to do away with subsidies altogether, there is definitely a need to prune them by plugging the leaks. This will also ensure that they reach intended beneficiaries.

Towards this end, the government had recently taken a few steps. Key among them was the decision to allow oil marketing companies to increase diesel prices in a phased manner and decontrol the fuel for bulk consumers.

Reuters

Reuters

HDFC’s chief economist Abheeek Barua is ready to give credit to the government for these initiatives.

But much more needs to be done and any decision by the government is fraught with political challenges.

According to Pronab Sen, former principal advisor, Planning Commission, the government has to make a difficult choice on whether to push the targeted subsidies or non-targeted subsidies.

But more than the government’s subsidy burden, what Indranil Pan of Kotak Mahindra Bank is more bothered about is its interest payment bill.

With a high government borrowing, which is seen about Rs 5.6 lakh crore, for the next year, and no significant fall in interest rates, the interest burden of the government is likely to be 0.4-0.5 percent of GDP, he warns.

In the Budget for 2012-13, the government had pegged its outgo on food, fuel and fertiliser subsidies at over Rs 1.79 lakh crore, which was nearly 14 percent lower than the revised estimates for the previous financial year.

The government had also committed to restricting the expenditure on central subsidies to under 2 percent of GDP for the current year. Over the next three years, it would be further brought down to 1.75 percent of GDP, it had said.

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