Besides higher expenditure compression achieved since he took charge and the twin assault on fuel subsidies — price hikes and better delivery of the doles — finance minister P Chidambaram is taking several measures to slow spending growth in 2013-14 and beyond.
Unlike the more obvious attempts at expenditure control, these steps have a bit of covertness about them for their technical nature and hence, are likely to escape public criticism. Nevertheless, these will potentially help the minister in his fiscal consolidation plan. No less so in the next fiscal, given Chidambaram’s plan to reduce fiscal deficit to 4.8% of the gross domestic product (GDP) even as most forecasts peg growth below 6%.
Most importantly, questions have been raised by the finance ministry over the manner of estimating oil and fertiliser subsidy amounts by the administrative ministries concerned and alternative models entailing considerable potential savings are being flagged. Further, capital receipts from PSU disinvestment are being proposed to be used only for productive, asset-creating spending — a move that could help reduce wasteful utilisation of these resources for revenue expenses in the guise of social-sector spending and generate some incremental growth out of these with the resultant acceleration of revenue streams. A little more flexibility in employing the usual way of deferring a chunk of the subsidy payments on fuel and fertiliser due in a given year to the subsequent one is also on cards, without fluttering the industries concerned too much.
The finance ministry, as FE has reported, is insisting on shifting to export parity pricing for calculating under-recoveries of oil marketing companies from the existing trade parity model. If this model were implemented in 2012-13, OMCs’ under-recoveries would have been R18,000 crore less (Full-year under-recoveries are now estimated at R1.67 lakh crore). Under this system, OMCs will be considered entitled to fetch refinery gate prices equal to a defined, average export (FOB) prices of their products (petrol, diesel, cooking gas and kerosene) in select markets and the difference between the price realised by them and the export price determined will be treated as under-recoveries, to be compensated through subsidies. The proposed method will allow more savings for the government on the subsidy front because the export parity price is bound to be lower than the trade parity price which is sum total of landed cost of imports and export price in the 4:1 ratio.
This is because while export