Govt need to manage subsidies more strictly and in a targeted manner

New Delhi: In view of rising pressure on government finances due to the cut in taxes on fuel, the Centre needs to manage subsidies more strictly and in a targeted manner, official sources said.

The government had on May 23 cut excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 a litre to cool record high inflation, thereby sacrificing revenue of Rs 1 lakh crore annually. Earlier in April, the Centre approved a subsidy of Rs 60,939.23 crore for phosphatic and potassic (P&K) fertilisers, including DAP, for the first six months of this fiscal.

This has put additional burden on the fiscal deficit. In addition, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has been extended by six months till September 2022 to help the vulnerable sections of the population. With cuts in excise duties on diesel and petrol hitting revenue collection, meeting additional expenditure on food and fertiliser subsidies would be a challenge, the sources said, adding there is a need to manage the subsidies more strictly and in a targeted way.

Under the PMGKAY, the government provides 5 kilograms of free ration per person per month in addition to their normal quota of food grains under the National Food Security Act. From April 2020 to September 2022, the government has allocated 1,003 lakh MT of food grains for PMGKAY, benefiting 80 crore people for two-and-a-half years. In addition, during the initial months of the pandemic, the government transferred Rs 500 per month for three months to women Jan Dhan account holders, totalling Rs 1,500 of transfers each to 20 crore women.

The sources further said that India's macroeconomic fundamentals are strong to deal with global challenges and the central government is committed to sticking to the fiscal deficit target of 6.4 per cent of the GDP for the current fiscal.

Fiscal deficit is the difference between total revenue and expenditure of the government. It also indicates the total borrowings that are needed by the government to bridge the gap. The fiscal deficit for the last financial year was contained at 6.7 per cent of the GDP, slightly lower than the 6.9 per cent estimated in Budget FY'23. The government is taking steps to deal with the elevated crude oil prices in the international market, the sources added.

India meets nearly 85 per cent of its oil demand through imports and a weaker rupee makes inbound shipments costlier. Commodity prices, including of crude oil, are ruling high due to the ongoing Russia-Ukraine war and have led to inflationary pressures across countries, including India. The government is committed to adhering to the fiscal consolidation path and the Budget this year has pegged the fiscal deficit at 6.4 per cent of the GDP.

Sources said steps are being taken to address the situation arising out of rising crude oil prices. While acknowledging that there are strong global headwinds, the sources said the country's macroeconomic fundamentals are strong enough to deal with challenges. They, however, added that the current account deficit (CAD) is expected to be high due to firm crude oil prices.

For the past several years, India had low CAD but this year there is headwind on that front. However, the macroeconomic situation and foreign exchange reserve are better than in the past, the sources added.