Central govt may keep subsidies on a tight leash to balance its finances

NEW DELHI: In view of rising pressure on government finances due to the cut in taxes on fuel, the Centre needs to manage subsidies more strictly and in a targeted manner, official sources said.

The government had on May 23 cut excise duty on petrol by ₹8 per litre and on diesel by ₹6 a litre to cool record high inflation, thereby sacrificing revenue of ₹1 lakh crore annually. Earlier in April, the Centre approved a subsidy of ₹60,939.23 crore for phosphatic and potassic (P&K) fertilisers, including DAP, for the first six months of this fiscal. This has put additional burden on the fiscal deficit.

In addition, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has been extended by six months till September 2022 to help the vulnerable sections of the population.

With cuts in excise duties on diesel and petrol hitting revenue collection, meeting additional expenditure on food and fertiliser subsidies would be a challenge, the sources said, adding there is a need to manage the subsidies more strictly and in a targeted way.

Under the PMGKAY, the government provides 5 kilograms of free ration per person per month in addition to their normal quota of foodgrains under the National Food Security Act.

From April 2020 to September 2022, the government has allocated 1,003 lakh MT of foodgrains for PMGKAY, benefiting 80 crore people for twoand-a-half years.

In addition, during the initial months of the pandemic, the government transferred ₹500 per month for three months to women Jan Dhan account holders, totalling ₹1,500 of transfers each to 20 crore women.

The sources further said that India’s macroeconomic fundamentals are strong to deal with global challenges and the central government is committed to sticking to the fiscal deficit target of 6.4% of the GDP for the current fiscal. Fiscal deficit is the difference between total revenue and expenditure of the government. It also indicates the total borrowings that are needed by the government to bridge the gap. The fiscal deficit for the last financial year was contained at 6.7% of the GDP, slightly lower than the 6.9% estimated in Budget FY’23.

The government is taking steps to deal with the elevated crude oil prices in the international market, the sources added.

India meets nearly 85% of its oil demand through imports and a weaker rupee makes inbound shipments costlier. Commodity prices, including of crude oil, are ruling high due to the ongoing Russia-Ukraine war and have led to inflationary pressures across countries, including India. The Budget this year has pegged the fiscal deficit at 6.4% of the GDP.