Need to manage subsidies in a targeted way to contain the budget deficit: government sources
Given the growing pressure on public finances from lower fuel taxes, the Center needs to manage subsidies in a stricter and more targeted way, official sources said.
On May 23, the government cut excise duties on petrol by Rs 8 per liter and on diesel by Rs 6 per liter to cool record inflation, thereby sacrificing revenue of Rs 1 lakh crore per annum. Earlier in April, the Center approved a grant of Rs 60,939.23 crore for phosphate and potash (P&K) fertilizers including DAP for the first six months of this financial year. This added to the burden of the budget deficit.
In addition, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has been extended for six months until September 2022 to help vulnerable sections of the population.
With diesel and gasoline excise duty cuts affecting revenue collection, coping with additional spending on food subsidies and fertilizers would be a challenge, the sources said, adding there was a need to manage the subsidies in a stricter and more targeted manner.
Under the PMGKAY, the government provides 5 kilograms of free ration per person per month in addition to its normal food grain quota under the National Food Security Act.
From April 2020 to September 2022, the government has allocated 1,003 lakh MT of food grains to PMGKAY, benefiting 80 crore people for two and a half years.
Additionally, in the early months of the pandemic, the government transferred Rs 500 per month for three months to female Jan Dhan account holders, totaling Rs 1,500 in transfers each to 20 million women.
The sources further said that India’s macroeconomic fundamentals are sound to weather global challenges and the central government is committed to meeting the fiscal deficit target of 6.4% of GDP for the fiscal year. In progress. The budget deficit is the difference between total government revenue and expenditure. It also shows the total borrowing the government needs to fill the gap. The budget deficit for the last fiscal year was contained at 6.7% of GDP, slightly lower than the 6.9% estimated in the fiscal year 23 budget.
The government is taking action to deal with high crude oil prices in the international market, the sources added.
India meets nearly 85% of its oil demand through imports and a weaker rupee makes inbound shipments more expensive.
Commodity prices, including crude oil, are high due to the ongoing Russian-Ukrainian war and have led to inflationary pressures in all countries, including India.
The government is committed to following the path of fiscal consolidation and this year’s budget set the budget deficit at 6.4% of GDP. Sources said steps were being taken to address the situation resulting from rising crude oil prices.
While acknowledging that there are strong global headwinds, the sources said the country’s macroeconomic fundamentals are strong enough to weather the challenges.
They added, however, that the current account deficit (CAD) is expected to be high due to firm crude oil prices.
For the past few years, India had a weak CAD, but this year there is a headwind on that front. However, the macroeconomic situation and the foreign exchange reserve are better than in the past, the sources added.
(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)