The Vijay Kelkar committee recommended in its report made public on Friday that the government prune its subsidies, check plan expenditure, raise at least Rs 30,000 crore from disinvestment and shore up tax-to-GDP ratio to restrict fiscal deficit at 5.2 per cent of the gross domestic product (GDP) for the current financial year.
The committee warned that fiscal deficit could widen to 6.1 per cent of GDP, against the Budget Estimate of 5.1 per cent, if the government did not act. It said the Budget had overestimated tax receipts by Rs 60,000 crore and underestimated subsidies by Rs 70,000 crore.
The government, however, with the food security Bill on its mind, was quick to distance itself from the committee’s recommendations on subsidies. Economic Affairs Secretary Arvind Mayaram told reporters: “Some recommendations appear contrary to the government’s declared objective of sustained and inclusive growth.”
| KEY RECOMMENDATIONS |
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The panel recommended the proposed Food Security Bill be implemented in phases. Mayaram said: “The government has reiterated its intention of ensuring food security for all.”
The panel said it wanted the government to increase the prices of food items sold through ration shops every time the minimum support price was revised. Besides, it recommended that selling of sugar at ration shops be discontinued.
The committee also suggested that the prices of diesel be raised immediately by Rs 4 a litre, kerosene by Rs 2 a litre and LPG by Rs 50 a cylinder. It said these steps would reduce underrecoveries of oil marketing companies by Rs 20,000 crore. However, analysts’ estimates suggest that the government’s recent steps are good enough to reduce the underrecoveries by Rs 20,300 crore.
The panel further recommended increasing the price of diesel at regular intervals, until it became completely deregulated, and keeping the subsidy on LPG and kerosene at affordable levels.
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The Kelkar panel favoured the proposal to increase the maximum retail price of urea by 10 per cent during the first year, with any further increase being limited to any increase in the pooled gas price.
The panel made a case for the government saving additional Rs 20,000 crore in Plan expenditure through proper prioritisation and efficient use of available resources.
| FISCAL ROAD MAP Scenarios for 2012-13 as outlined by the Kelkar panel | |||
| (% of GDP) | BUDGET ESTIMATE | WITHOUT REFORM | WITH REFORM |
| Total receipts | 9.6 | 9.1 | 9.4 |
| Gross tax revenue | 10.6 | 10.1 | 10.3 |
| Non-debt capital receipts | 0.4 | 0.2 | 0.4 |
| Total expenditure | 14.7 | 15.2 | 14.6 |
| Non plan expenditure | 9.5 | 10.2 | 9.8 |
| ..of which subsidies | 1.9 | 2.6 | 2.2 |
| Plan expenditure | 5.1 | 5 | 4.8 |
| Fiscal deficit | 5.1 | 6.1 | 5.2 |
| Revenue deficit | 3.4 | 4.4 | 3.7 |
| Debt | 45.5 | 46.7 | 46.1 |
On the tax front, it said the government needed to review the Direct Taxes Code Bill and bring more services in the tax net. Besides, it wanted the finance ministry to tone its tax administration.
On the indirect taxes, it suggested progressively cutting excise duty from 12 per cent to 8 per cent to align it with the GST rate.
The Kelkar panel added that the government could garner Rs 30,000 crore from disinvestment by making the offer-for-sale model attractive and using the exchange-traded model for securities held by it in public sector units. It also wanted the government to set up a group to suggest on monetising the government’s land resources.
The panel said the Centre might be able to cap its fiscal deficit at 4.6 per cent of GDP in the next financial year and 3.9 per cent in 2014-15, if the steps suggested by it were implemented.