The Vijay Kelkar committee has outlined a programme for the Centre to keep its budget deficit in check for the next three years, leaving the 14th Finance Commission (2015-2020) to decide on the action required in subsequent years.

The committee set up by the finance minister P Chidambaram for drawing a new fiscal consolidation road map, has proposed calibrated hikes in diesel and LPG prices, proactive disinvestment and measures to increase revenue buoyancy.

In its report to the finance minister submitted on Monday but not made public yet, the committee is learnt to have proposed immediate measures to stem the runaway fiscal deficit in the current fiscal. In the first four months, the deficit stood at more than half of the budget estimate. It also suggested how further consolidation could be achieved in 2013-14 and 2014-15.

Sources said the committee has proposed immediately raising LPG prices by R50 a cylinder and diesel by R4 a litre on diesel besides a marginal increase in kerosene to check the deficit this year. This could be followed with similar hikes in the next two years.

While conceding it would be practically difficult to meet the budget target to cut fiscal deficit to 5.1% of GDP, the panel set a realistic estimate contingent on action to bring it as close as possible to the target.

There is also a proposal to increase the direct tax collection target for this fiscal (now R5.7 lakh crore) even though the current growth rate of 10% is below the targeted 15%. One option could be to increase the average effective tax rate for corporates to 26% from current 24% by focusing on sectors that underpay taxes.

The panel said given subsidy demands from the petroleum and fertiliser ministries so far this fiscal, the budget proposal to cap the overall subsidy at 2% of GDP would be a tall order. Over the budgeted subsidy amount of R1.9 lakh crore, the government has a cushion of just R12,000 crore if it has to limit the subsidy at 2% of GDP.

Thanks to the slowdown impacting revenue buoyancy and the government’s inability to control expenditure, there was a big slippage on the fiscal front in 2011-12, undoing the corrections of the previous two years. The Centre?s fiscal deficit stood at 5.8% of the GDP in 2011-12, a trifle below the revised estimate of 5.9%, but much higher than 4.6% originally budgeted. The situation has prompted Chidambaram to set up the Kelkar panel and indicate a reassessment of the budgeted fiscal deficit for the current fiscal.

The target growth in tax revenue for the current fiscal ? 19.7% ? appears very difficult to achieve right now, with the slippage in collections so far.

In a recent report, Morgan Stanley Research said slower indirect tax collection growth combined with continued high growth in government spending will push the Centre’s fiscal deficit higher than the budget estimate. The government has also made it clear that while controlling the fiscal deficit is its topmost priority, productive investments ?including those by PSUs ? would be encouraged given the dismal investment scenario and its very visible impact on growth. The GDP grew at just 5.5% in the fiorst quarter of this fiscal and the manufacturing sector posted near zero growth.