By ET Bureau | 2 Mar, 2015, 03.14AM IST
NEW DELHI: The government plans to actively pursue the next generation of subsidy reforms in 2015-16 with the help of universal Aadhaar coverage and more efficient procurement and distribution of foodgrains, steps that it believes will help reduce the burden of subsidy.
The 'medium term fiscal policy statement', part of this year's budget papers, also stresses that the pricing reform in fertilisers is "urgently required" for proper fiscal consolidation. The Budget presented on Saturday deferred previously set fiscal targets to allow greater state funding in the infrastructure sector.
"Without focused subsidy reforms, the process of fiscal consolidation will be difficult. The expenditure of government on major subsidies is projected to come down from 2.2% of GDP in 2013-14 to 2% of GDP in 2014-15. It is expected that with active policy reforms, the incidence will progressively reduce (to) 1.6% in 2016-17 and 2017-18, respectively," the statement said.
Reforms in food procurement and distribution are already on the agenda of the government, which is studying path-breaking recommendations of the Shanta Kumar panel, which has suggested use of direct cash transfer to help deregulate fertilisers and save Rs 30,000 crore a year in public distribution system (PDS). The panel has said direct cash subsidy of about Rs 7,000 per hectare to farmers will help decontrol fertilisers.
The Budget documents signal an imminent push to reforms in the sector. "Decentralised procurement and distribution of foodgrain, end-to-end computerisation, combined with universal Aadhaar coverage, improving the operational efficiency of the Food Corporation of India (FCI) are some of the measures that will set the stage for the next generation food subsidy reforms," the medium-term fiscal policy statement has said, adding that the "government will actively pursue this during the course of this financial year". The government has also gained from the sharp fall in international oil prices, which has helped lift price controls on diesel, and better targeting of cooking subsidy, which is increasingly being transferred directly to bank accounts of customers.
"With deregulation of diesel prices and rationalisation of LPG subsidy, it is expected that the provision for fuel subsidy kept in the Budget should suffice. However, increased allocation for food subsidy has been retained in view of additional requirements to meet the demand from National Food Security Act," it said. According to government officials, reforms in food procurement and distribution are important for not just better targeting of subsidies, but also plugging huge leakages.
The Shanta Kumar panel said leakages range from 40-50% in some states to as much as 60-70%. For grain distribution, it recommended direct transfers in cities with population of more than one million, followed by grain surplus states, and giving an option to deficit states to opt for cash or physical grain distribution. The panel said that direct cash subsidy to farmers will help decontrol fertilisers and help plug diversion of urea to nonagricultural uses as well as to neighbouring countries.
The government also recognises the problems in fertilizer subsidy, which also leads to abnormally high use of subsidised soil nutrients. "What is now urgently required are certain pricing reforms in the urea sector with an immediate price correction for urea, new nutrient based urea policy. This is not only essential from viewpoint of the size of the subsidy bill but also from the viewpoint of balanced use of N, P&K nutrients," it said.
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