Hike fuel, get rid of subsidies to deal with deficit: Kelkar panel

New Delhi,: Already battling opposition to its reforms measures, the Government has been asked by the Kelkar committee to eliminate various subsidies in phases by hiking prices of LPG, kerosene, diesel and foodgrains by one-third by 2014-15 in ration shops to deal with the deteriorating fiscal situation.

The Committee headed by former Finance Secretary Vijay Kelkar has also suggested a slew of bold measures to cut the subsidy bill, which did not find favour with the government.

On disinvestment side, the Committee said that in absence of adequate steps the government will be able to raise around Rs 10,000 crore, as against the target of Rs 30,000 crore. The budget target of Rs 30,000 crore, the panel said, could be met by the government by selling minority stakes in companies like SUUTI, Hindustan Zinc and Balco.

More from Economy

Inflation likely to be a big focus area for budget 2024, say sources Explained: Will the Bank of Japan break tradition and raise interest rates?

[caption id=“attachment_474630” align=“alignleft” width=“380”]  The Kelkar panel has cautioned that absence of quick credible steps to correct fiscal situation is likely to result in sovereign credit downgrade and flight of foreign capital. PIB[/caption]

It further said that the funds from the monetisation of surplus government land could be made available to fund infrastructure needs of the country.

The Committee also wants the government to pursue reforms in other sector, like infrastructure, finance, taxation and regulation to improve business climate and spur investment.

The government had on September 13, raised the price of diesel by over Rs 5 per litre and capped the number of subsidised LPG cylinders at 6 per family per year.The committee further said the fertiliser and food subsidies are expected to exceed the budget estimates by Rs 10,000 crore each. In the 2012-13 Budget, the fertiliser subsidy was pegged at Rs 60,974 crore and the food subsidy at Rs 75,000 crore. “We feel that if no steps are taken the subsidy expenditure would go up from budgeted 1.9 per cent to 2.6 percent of the re-assessed GDP,” it said.

It cautioned that in absence of these measures, the fiscal deficit of the government could shoot up to 6.1 percent of the Gross Domestic Product (GDP) in the current financial year. It can be contained to 5.2 percent with the proposed reforms.

With regard to fertiliser subsidy the Committee said that there was urgent need to increase urea price saying it would close the wide gap between nitrogenous fertiliser and P&K fertiliser to encourage efficient use and improve farm productivity.

The Committee said that the issue price of food grains at ration shops should be increased in tandem with hike in Minimum Support Price (MSP). The panel wants government to do away with sugar subsidy, which account for just 10 per cent of total consumption.

It also wants that implementation of the Food Security Bill to provide cheap grains to persons below poverty line, be “appropriately phased” in view of difficult fiscal challenges. Policy interventions, the panel said, is also needed to limit the shortfall in the tax-GDP ratio in 2012-13 to 10.3 per cent from 10.1 percent in the previous fiscal. In absence of reforms it could deteriorate to 10.1 per cent on account of shortfall in collections.

The Kelkar panel has cautioned that absence of quick credible steps to correct fiscal situation is likely to result in sovereign credit downgrade and flight of foreign capital. “The situation is all the more dangerous now, much more than so in the past, because we have a surge in the young people looking for jobs…If growth slips to say 6 percent or below, and employment growth slows below 2.4 percent, unemployment would rise,” the report said.

It also emphasised that growth is faltering and external payment situation is flashing red light.

The government is of the view that in a developing country where a significant proportion of the population is poor, a certain level of subsidies is necessary and

unavoidable, and measures must be taken to protect the poor and vulnerable sections of the society", Department of Economic Affairs (DEA) secretary Arvind Mayaram said on Saturday.

He further said Committee’s recommendation of withdrawal of certain subsidies is in divergence with the stated policy of the government. The government, he clarified, has not yet taken a view on the recommendations of the Kelkar Committee.

The government has invited comments of stakeholders on the Kelkar panel report.

The government’s guarded reaction to the recommendations comes in wake of widespread protest against its recent decision to raise price of diesel by Rs 5 per litre and capping of subsidised LPG to six per family a year.

Agencies