While the Finance Minister has played it safe owing to political compulsions, Prime Minister Manmohan Singh has emphasized that there is need to bite the bullet on subsidies to ensure governance. But can the UPA government deliver? Pranab Mukherjee plans to take subsidies to below 2% of GDP. The allocation for food, fuel and fertilizer subsides is Rs 1.8 lakh crores. He is serious about achieving a 5.1% fiscal deficit. In the past, spending limits had been exceeded. Last year the extra expenditure was Rs 74,000 crores . The volatility of crude prices also upsets budget calculation.
Hiking excise on diesel cars is on the cards. Decontrolling diesel price will be better than subsidy cuts. It should narrow the gap between petrol and diesel prices. It will reduce adulteration and smuggling. Huge subsidy bills will hike inflation. Full decontrol of fuel prices will increase the profits of oil PSUs. It will also increase private participation in retail. Besides, waste of diesel will go down and so will the threat to the environment. It is also necessary to remove the gap between government controlled urea prices and decontrolled non-urea fertilizer prices. It has to be ensured that fertilizer subsidy goes to needy farmers. The FM has planned a mobile-based system of tracking fertilizer subsidy movement. There is a huge food security system on the government’s plate. A coupon system or cash transfer should be introduced. That will eliminate waste and diversion and make for cost-effective delivery .UID and financial inclusion cover will help. As a result, more resources will be available for social and infrastructure sectors.
