Not just explicit cuts, tweaked subsidy math also to help FM

Feb 25 2013, 12:36 IST
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SummaryBesides higher expenditure compression achieved since he took charge and the twin assault on fuel subsidies ó price hikes and better delivery of the doles ó finance minister P Chidambaram is taking several measures to slow spending growth in 2013-14 and beyond.

discounts in crude supplies to OMCs), would rise to 54% in 2013-14 while the absolute amount would increase relatively marginally, as per Citi Research.

Chidambaramís bid to stem subsidy bills extends to the fertiliser sector as well. While his ministry has asked a question or two about the way the fertiliser ministry estimates the subsidy amount, the deferral of payments is said to be larger this year, while pending fertiliser subsidy bill since August is over Rs 40,000 crore.

Another initiative is regarding the use of disinvestment proceeds, a major head of non-debt capital receipts, which is expected to be close to Rs 27,000 crore this fiscal. As per the recent decision of the Cabinet Committee on Economic Affairs (CCEA), the National Investment Fund (NIF) created out of disinvestment receipts would now be used to recapitalise public sector banks and state-owned insurance firms. This marks a departure from the decision taken in 2009 at the peak of the global financial meltdown that the disinvestment proceeds would be used only for social-sector spending.

Expenditure growth during April-December this fiscal has been less than the budgeted 13.1% at 10.6%, thanks to a big squeeze on capital expenditure. (During Apri-December, capital expenditure grew just 9.6% year on year as against the budgeted rate of 30.6%). With GDP growth much less than budgeted 7.6% (5% as per latest statistics ministry estimate), revenues have been hit and April-December growth has been 13.8% against the budget projection of 22.7% (this must have improved a bit after the NTPC disinvestment that fetched close to Rs 12,000 crore), with net tax revenue growth being 15.2% against 20.1% seen in Budget. While Chidambaram had to cut growth-inducing capital spending to meet his fiscal objectives this year, the series of subtle but substantive changes he is proposing to bring on the expenditure front would stand him in good stead for 2013-14.

Balancing Act

* Finmin has questioned the manner of estimating oil and fertiliser subsidy amounts

* The proposed shift to export parity pricing model to reduce under-recoveries

* Govt may also defer some of its subsidy payment obligations to next fiscal

* National Investment Fund to be used to recapitalise PSBs, state-owned insurers

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