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Expenditure on subsidies to fall over next 2 years: Government

Author: IANS/Friday, August 11, 2017/Categories: Government

Expenditure on subsidies to fall over next 2 years: Government

New Delhi - In major reforms, the government expenditure on major subsidies like petroleum, food and fertilisers is estimated to come down in the next two years with the payout on Liquefied Petroleum Gas (LPG) to be completely removed from March 2018.

"Over the projection period, the government expenditure on major subsidies is estimated to come down from 1.4% of GDP in Budget Estimate 2017-18 to 1.3% of GDP in 2019-20," according to the Medium-Term Expenditure Framework (MTEF) Statement laid in the Lok Sabha by Finance Minister Arun Jaitley on August 10.

The government said in the document that the projection figures for food, fertiliser and food subsidies were Rs 1,75,000 crore, Rs 70,000 crore and Rs 18,000 crore, respectively, for 2018-19. The corresponding figures for 2019-20 are Rs 2,00,000 crore, Rs 70,000 and Rs 10,000 crore, respectively. 

The document said that one of the main reasons for an increase in food subsidy is to meet the repayment obligations of the Food Corporation of India (FCI) to the National Small Savings Fund. 

The government said the expenditure on these major subsidies has been budgeted to be Rs 2,40,339 crore in the current fiscal. Among the three, food subsidy bill comprises nearly 60% of the major subsidy bill and fertiliser comprises nearly 29%. The subsidy on fuel takes up the rest. 

The subsidy bill as a percentage of GDP is budgeted to be 1.4% in the current financial year. The ratio has been projected to decrease by 0.1 percentage point over the course of next two years.\

The document noted that with diesel and petrol being fully decontrolled from January 1, 2015 the petroleum-related subsidies now cater to kerosene and LPG. In continuation of the efforts of the government to rationalise subsidies, the government has decided to increase the cost of LPG cylinders at Rs 4 per month. The ultimate aim of the government is to eliminate the subsidy on LPG cylinders by end-March 2018.

It said steps are also being taken to enhance the Direct Benefit Transfer (DBT) coverage for kerosene. "Going forward, the subsidy for petroleum products is likely to see a declining trend." 

Referring to the food subsidy bill at Rs 1,45,339 crore in the Budget Estimate of 2017-18, the document said reforms in food subsidy have been initiated. Six states have automated all their Fair Price Shops (FPSs). In addition, a total of Rs 1,77,746 FPSs have been automated with electronic Point of Sale (ePoS) machines and 72% ration cards have already been seeded with Aadhaar.

Making headway in fertiliser subsidy reforms, Department of Fertilisers has chalked out a programme to implement DBT in modified form through pilot projects in 16 districts. 

As an outcome of neem coating of urea, Kharif 2016 was the first season when entire urea consumed came to be neem-based. This has been estimated to bring down the consumption of urea by 8.66 lakh tonnes compared to the previous year.

The savings in subsidy at approximately Rs 12,000/tonne is estimated to be over Rs 1,000 crore on this count alone. The provision for fertiliser subsidies in Budget Estimate 2017-18, however, has been retained at Revised Estimate 2016-17 level of Rs 70,000 crore.

On the overall revenue expenditure, the Finance Ministry statement says that the proportion of revenue expenditure in total outgo is budgeted to be 85.6 per cent in 2017-18. This proportion has been projected to be roughly the same in next fiscal and is projected to decrease to about 85% in 2019-20.

Salary projections (net of Defence salaries) in absolute terms is, therefore, kept to Rs 1,38,122 crore in 2018-19 and Rs 1,49,457 crore in 2019-20.

Pension commitments will increase by about 10% in 2018-19 and 8% in 2019-20 over the previous years' estimate and projections. From the base year, pension amount of Rs 1,31,201 crore in 2017-18, MTEF projections for pensions has been kept at Rs 1,44,321 crore and Rs 1,55,867 crore in 2018-19 and 2019-20, respectively.

The document says that the total revenue expenditure of the Defence is estimated to be Rs 1,82,534 crore in Budget Estimate of the current year, excluding the Defence pensions. 

The aggregate revenue expenditure in the Defence demand, excluding Defence pensions as integrated in the manner mentioned above, is expected to grow by about 10.4% in 2018-19 and 8.5% in 2019-20 over previous years estimates/projections. This pushes the Defence revenue expenditure to Rs 2,01,511 crore and Rs 2,18,629 crore in 2018-19 and 2019-20, respectively.

Interest payments, which constitute the largest component of the Centre's revenue expenditure, have been estimated at Rs 5,23,078 crore in Budget Estimate 2017-18. It constitutes 24% of the total expenditure of the central government in the current fiscal. As a percentage of gross tax revenue, this constituted 27 per cent.

The MTEF projections for the nominal interest payments for the years 2018-19 and 2019-20 have been pegged at Rs 5,64,400 crore and Rs 6,15,000 crore, respectively.

"The interest payments nearly equal the fiscal deficit of the country. Interest payments work out to 3.1% of GDP. This is partly reflective of the declining trajectory of the fiscal deficit," the Statement said.

The Statement said the Indian economy grew by 7.1% in real terms in 2016-17. This was compared to the real growth rate of the economy of 8% shown in 2015-16. The corresponding real growth rates for Gross Value Added (GVA) at basic prices were 6.6% in 2016-17 and 7.9% in 2015-16. Nominal GDP growth clocked a robust 11% in 2016-17 compared to a growth rate of 9.9% in 2015-16. 

It said GVA at basic prices by the same measure grew by 9.7% in 2016-17 as opposed to 8.5% in 2015-16.

On inflation, it said inflation has been on the decline since 2014-15. Headline inflation based on Consumer Price Index declined to 4.5% in 2016-17, as compared to 4.9% in 2015-16 and 5.9% in 2014-15. Inflation based on the Wholesale Price Index averaged at 1.7% in 2016-17 as compared to (-)3.7% in 2015-16 and 1.2% in 2014-15.

As mentioned in the Medium Term Fiscal Policy Statement, the fiscal deficit has been projected to be kept at 3 per cent in 2018-19 and 2019-20. This is in consonance with the government's strategy of gradual reduction in fiscal deficit, balancing the twin objectives of fiscal consolidation and economic growth. 

The overall tax to GDP ratio was 11.3% of GDP in 2016-17, implying that gross tax revenues grew at a healthy rate of 18% over 2015-16.

It is projected that in the medium term tax revenues will show the growth anticipated during the presentation of the Budget and as mentioned in the Medium Term Fiscal Policy Statement. "It is felt that any shocks to tax collections due to the introduction of Goods and Services Tax (GST) will be absorbed in the current financial year and hence the tax-GDP ratio will remain at the level of 2016-17." 

However, going forward in the years 2018-19 and 2019-20, the gains from expansion of the tax base due to the introduction of GST and the increased surveillance post-demonetisation will ensure that tax-GDP ratio will increase by 30 basis points each in the next two fiscals. The tax-GDP ratios are projected to be 11.6% in 2018-19 and 11.9% in 2019-20.

In 2017-18, gross tax revenues are estimated to have a growth rate of 12.2%, whereas in 2018-19 it is anticipated to grow at the rate of 15% and in 2019-20 at the rate of 14.5%, assuming a robust tax revenue growth, it said.

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S Vijaykrishnan
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