In its report on the road map to fiscal consolidation, the three-member committee headed by the former Finance Secretary and 13th Finance Commission Chairman, Vijay L. Kelkar, has suggested a host of “bold reform” measures on ways of slashing the subsidy bill which, it admitted, would result in some short term pain and hardships.
The committee’s recommendations also include sale of surplus land with public sector undertakings (PSUs), fast-tracking of the Centre’s disinvestment programme, expansion of the service tax net to raise revenue as also an overhaul of the Direct Taxes Code (DTC).
Reading out from a prepared statement at the briefing, Dr. Mayaram said: “The committee has reached certain conclusions and has made a number of recommendations. The main conclusion of the report is that ‘We cannot over-emphasise the need and the urgency of fiscal consolidation.’”
The government has reiterated its intention to implement the promise of food security for all. While taking a final view on the various recommendations, “the government will bear in mind that the goal is to achieve high growth, inclusive development, and economic and social justice for all.”
In its report, the committee suggested phased elimination of subsidy on diesel and LPG in the next four years and reduction in kerosene subsidy by one-third by 2014-15. As for food and fertilizer subsidies, it has sought an increase in the urea price and a hike in the issue price of foodgrains at ration shops.
Alongside, it cautioned that without these measures, the fiscal deficit of the government could shoot up to 6.1 per cent of the Gross Domestic Product (GDP) in the current financial year.
It can be contained to 5.2 per cent with the proposed reforms.
The committee also recommended that over the next two-three years the government should raise resources by selling unutilised and under-utilised land of the PSUs, Port Trusts, and the Railways, to fund infrastructure sector.
As for disinvestment, it said that in the absence of adequate steps the government will be able to raise around Rs. 10,000 crore, as against the target of Rs. 30,000 crore.
With regard to petroleum subsidy, it suggested that the government should seek to eliminate diesel subsidy by 2013-14 and “our policy goal should be to eliminate the LPG subsidy by 2014-15 by reducing it by 25 per cent this year, with the remaining 75 per cent reduction over the next 2 years.”
‘Increase diesel, kerosene, LPG prices’
“For kerosene, the objective should be to reduce the subsidy by one-third by 2014-15. Our recommendation is to immediately increase the price of diesel by Rs. 4 per litre, of kerosene by Rs. 2 per litre and of LPG by Rs. 50 per cylinder… Overall, we feel that if no steps are taken the subsidy expenditure would go up from 1.9 per cent of the budgeted levels to 2.6 per cent of the re-assessed GDP,” it said.