Direct transfers to slash subsidies by up to 60%: FM

Jan 31 2013, 04:07 IST
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SummaryFinance minister P Chidambaram has said he is hopeful of achieving 20-60% savings on subsidies a year through better distribution under the new direct benefit transfer scheme that he expects to roll out completely by end-2013.

Finance minister P Chidambaram has said he is hopeful of achieving 20-60% savings on subsidies a year through better distribution under the new direct benefit transfer (DBT) scheme that he expects to roll out completely by end-2013. The minister also said the Budget in February would be a “responsible” one, and not one mindful of next year’s election, according to a Standard Chartered Bank note that highlighted key takeaways from his interaction at an investors conference in London on Tuesday.

With the promise that the subsidy on diesel, which accounts for 60% of the total fuel subsidy bill, will be phased out in two years, the targeted savings on account of DBT in other subsidies would indeed come handy for the Centre in its difficult-looking fiscal consolidation plan.

From the start of this month, the Aadhaar-enabled DBT has been under implementation in 20 districts of the country for disbursal of various doles/entitlements like old-age and widow pension schemes, student scholarships and payments under the employment guarantee scheme.

Subsidies including the three explicit ones on food, fertiliser and fuel will also be distributed to the beneficiaries through this route in coming months. Subsidies this fiscal are budgeted to be R1.9 lakh crore or 12.75% of the Budget, whereas the claims, inclusive of carryovers from last year, would be much higher, Chidambaram said.

“Building on the expected 5.3% fiscal deficit for FY13, a 4.8% deficit target is possible in FY14 if the government commits to diesel price deregulation, higher revenues via better tax administration, fertiliser subsidy reduction by way of urea price deregulation and lower administrative costs related to certain expenditure,” the note said.

Chidambaram said there was no ground for a rating downgrade for the Indian economy, and that GDP growth will return to 8% level in 2014-15. He expressed confidence that the pending Bills on the pension and insurance sectors would be passed in the budget session of Parliament in February.

The note quoted Chidambaram promising implementation of the goods and services tax (GST) by the end of 2013 and the Direct Taxes Code by August 2013. While reduction of fiscal deficit is an overriding objective for the government, attracting domestic and foreign investment was another priority for the government.

Reviving the investment cycle was key to a gradual recovery in growth to 6-7% in 2013-14 and to 8% in 2014-15.

The finance minister said the GST implementation alone could potentially add 1.5 percentage points to GDP growth,

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