Finance minister Arun Jaitley informed the Lok Sabha on Friday that government "shall" rationalise subsidies to ensure that only the vulnerable sections get its benefits and not those who are ineligible.
He said government plans to set up an expenditure management commission and one of its major tasks will be the subsidy bill of the government. He said the proposed commission will give its report by the end of the financial year.
The minister said that keeping in view the importance of keeping fiscal deficits under control, the government proposes to bring down major subsidies from 2.2% of GDP in 2013-14 (revised estimates) to 2.03% of the GDP in 2014-15 (budget estimates). "With active policy measures/reforms of the government to contain fiscal deficit and quantum of subsidy bill it is expected that the subsidy will progressively reduce. It is proposed to keep the subsidy level at 1.7% and 1.6% of GDP in 2015-16 and 2016-17 respectively," he said in his written reply.
To a supplementary on the need to recover pending taxes and removing tax collections instead of slashing subsidies to improve fiscal deficit, Jaitley said fiscal deficit is a situation which is reached when government's expenditures go out of control and there is no rise in revenue.
He said taxation has to be rationalised to make Indian products competitive. He said better saleability of products would mean increase in growth which would lead to larger revenue. According to the minister, the present government is clear that increased taxes lead to sluggish economy.
Responding to another supplementary as to whether government will pass on to the consumers the hike in urea prices after the price of natural gas is raised, he said the question is based on a "hypothetical premise". The new government is considering whether to increase gas prices and the decision it takes will be informed to the House.
To a supplementary on providing subsidies or free power supply to farmers, he said a government can spend within its means. If it borrows to spend, the next generation will have to repay the debts. Debts, he said, means more taxes.
He said since electricity is a state subject, states which can afford can give subsidy.