Bringing down subsidies below 2% not easy, says FICCI panel

A FICCI panel said bringing down subsidies below 2 per cent of GDP in 2012-13 from the existing 2.4 per cent level will not be an easy task.

"...though the budget targets to contain the subsidies under 2 per cent of GDP in 2012-13, bringing them down from the current 2.4 per cent will not be easy," the panel said at FICCI-FES Economists' Forum.

FICCI, partnered with Friedric Ebert Stiftung (FES), in a post-budget interaction on a wide range of subjects such as government expenditure, subsidies, fiscal deficit etc.

Referring to the subsidies issue, the panel said the implementation of food security bill will alone amount to a minimum of 0.7 per cent of GDP and could be as high as 1.5 per cent as the government had put out an estimate of food subsidy bill at Rs 1.12 lakh crore.

FICCI Secretary General Rajiv Kumar and a panel member said, "There is complete lack of clarity... on any plan (of government) how to do the deduction of subsidies..."

It is believed, the panel said, that the estimates of food subsidy may have a downward bias, as they do not include subsidy storage and transport, leakage costs etc.

"Food subsidy is projected to increase by only 3 per cent in 2012-13, against a 5 year CAGR at 22.1 per cent," it added.

On budgeted figures for oil subsidy, the panel said there has been no word on the proposed deregulation of the sector or an increase in diesel prices.

However, M Govindrao, director of National Institute of Public Finance, said, "We are facing half-budget constraints ...the budget, however, did not give much hope for (growth) revival."

On fiscal deficit, the panel also said over the medium term, the government hopes to bring down fiscal deficit further and has targeted a reduction in fiscal deficit to 4.5 per cent by FY 2014 and 3.9 per cent by FY 2015.

Govindrao and Kumar were among the a number of panelists participated in the forum.