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Centre may slash fertiliser and food subsidies - Views on News from Equitymaster
 
 
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  • Feb 28, 2000

    Centre may slash fertiliser and food subsidies

    The talk that the government is likely to cut subsidies on food and fertilisers has once again gained pace ahead of the presentation of the budget. According to newspaper reports, the government may have decided to cut the subsidy bill by upto Rs 60 bn. The subsidy bill in FY99 was in the vicinity of Rs 250 bn (1.4% of GDP). The fiscal deficit in FY99 was put at Rs 800 bn.

    Although the government has been under pressure to cut subsidies for a long time now, the fact that it is only a small fraction of a GDP is not known by many. And given the fact that over 35% of Indians are below the poverty line, the need for subsidies is genuinely felt. How they are directed and controlled is another matter.

    The fiscal deficit (FY99 - 4.5% of GDP) has ballooned in recent years and the demand to cut subsidies as a measure to curb the deficit has gained pace. However, a more appropriate measure could be to increase the tax and non-tax (for example proceeds form disinvestment) revenues of the government. The government's gross tax to GDP ratio has remained stagnant at approximately 8-9% over the last decade. This does not compare well with a ratio of 43% in Germany. A rise in the gross tax to GDP ratio would definitely go a long way in reducing the fiscal deficit.

     

     

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