The government on Friday appeared to differ with the Kelkar Committee report on sharp reduction in subsidies on petroleum, food and fertiliser.
The report had said that the policy objectives should be to eliminate half of the diesel per unit subsidy during this year itself by March 31, 2013, and the remaining half over the next fiscal year.
“Similarly, our policy goal should be to eliminate the LPG subsidy by 2014-15 by reducing it by 25 per cent this year, with the remaining 75 per cent reduction over the next two years. For kerosene, the objective should be to reduce the subsidy by one-third by 2014-15,” said the report.
The report also recommended that the Food Security Bill, which is on the anvil, should be appropriately phased out taking into account the present difficult fiscal challenges.
The report warned that fiscal deficit will shoot to 6.1 per cent against budget target of 5.1 per cent if immediate mid-year corrective actions are not taken. It cautioned that failure to take credible effective measures for correcting the current fiscal deficit will lead to a sovereign credit downgrade, flight of foreign capital and further weaken the rupee.
“Some recommendations appear contrary to the declared objective of the government of sustained and inclusive growth,” said department of economic affairs secretary Arvind Mayaram.
He said that the government is of view that in a developing country where a significant proportion of the population is poor, a certain level of subsidies is necessary “and unavoidable, and measures must be taken to protect the poor and vulnerable sections of the society.”
He said that the report is under consideration and the government has not yet taken a view on the report.
On food subsidy, the Kel-kar committee report recommended that there is a need to increase the Cent-ral Issue Price (CIP). “The Minimum Support Prices are decided every year and it is advisable that every time the MSP is revised, the CIP should be revised in the same proportion as the MSP,” said the report.
It said that the most urgent reform required on the fertiliser subsidy front is revision in urea price.
Subsidies may increase deficit
Immediate increase in petroleum prices
Deregulation of diesel prices by 2014-15
Kerosene and LPG prices must be revised regularly
Continuously revise urea prices
Remove the system of levy (subsidised) sugar
Implement direct transfer of cash subsidies
Direct Taxes Code Bill should be reviewed
Implement the Goods and Services Tax
Higher subsidies may result in 6.1% fiscal deficit
Bring down fiscal deficit to 3.9% in FY15