FY16 subsidy bill to fall 8.6% on fuel sop cut

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Published: March 1, 2015 2:50:17 AM

The Budget projects subsidies to decline 8.6% in FY16, for the first time in over a decade, mainly due to halving of fuel subsidies...

The Budget projects subsidies to decline 8.6% in FY16, for the first time in over a decade, mainly due to halving of fuel subsidies, giving the government extra fiscal space to invest more in infrastructure. The government estimates total subsidies to decline to R2.44 lakh crore in FY16 from R2.67 lakh crore in FY15.

Contrary to expectations, the subsidy bill for FY15 will rise by about R7,000 crore as against the Budget estimate of R2.60 lakh crore, mainly due to higher outgo towards food subsidies.

The fuel subsidies, mainly cooking gas and kerosene, will decline by by 50% to R30,000 crore in FY16, on account of crash in international crude prices, end of diesel subsidy and plugging of leakages in LPG subsidy. The fuel subsidy bill for FY15 is revised downward by R3,156 crore to R60,270 crore.

Fertiliser subsidies will rise marginally to R72,968 crore in FY16.

The estimate for FY15 has been revised downward by R2,000 crore to R70,967 crore.

Despite non-implementation of National Food Security Act, food subsidies will cost 8% more to the exchequer at R1.23 lakh crore in FY15. It is projected to rise marginally to R1.24 lakh crore in FY16.

“It is surprising to see a higher food subsidy than budgeted in 2014-15 and is projected to go up further in 2015-16,” said NR Bhanumurthy, professor at New Delhi-based National Institute of Public Finance and Policy.

Finance minister Arun Jaitley said subsidies will remain, but not leakages. Also, subsidies are going to be rationalised, he added.

The government, which has implemented direct cash transfer for LPG subsidy, expects substantial savings in subsidies once the direct benefit transfer is implemented for more government welfare programmes such as for fertiliser.

“The government’s effort to rationalise subsidies and implement through use of direct benefit transfer will help in improving the public delivery mechanism but also in better targeting such government support,” said Bhanumurthy.

Three major subsidies – food, fertiliser and fuel – account for about 95% of total subsidies. Major subsidies are budgeted to be at 1.6% of GDP in FY16, down from Budget estimate of 2% in FY15.

Among other subsidies, interest subsidy is projected to rise by one-third to R14,903 crore in FY16.

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