Subsidy growth to be flat, easing way to deficit target

This is good news for Chidambaram, who returned to the finance ministry in August, because it implies that contrary to popular notion, the subsidy claims haven’t ballooned this year. It has remained more or less at the same level as the corresponding period last year in the first half. It would therefore be reasonable, rather than unduly hopeful, to assume that the expenditure on the major subsidies in the second half can be restricted closer to R75,000 crore (actuals of H1 last year) than R1.4 lakh crore disbursed in the first half of this year. What buttresses this notion is that the global demand outlook remains subdued for most commodities including crude, fertiliser inputs and vegetable oil and, so, their prices are unlikely to flare up in the second half of this fiscal and push up subsidy claims.

Which means the 2012-13 budget estimate (BE) of subsidies — R1,90,000 crore including R1,79,554 crore major subsidies — is not as unrealistic as it would seem at first glance.

This is despite Parliament's approval sought last week for an additional expenditure of Rs 32,120 crore (cash outgo Rs 30,804 crore) mainly to meet the oil subsidy bill.

The three major subsidies accounted for some 11.5% of the 2011-12 budget. Since there is a big external factor about the size of subsidies (oil and key fertiliser inputs are largely imported), these constitute an expenditure head much less amenable to the finance minister's discretion than other items. And here, the

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