Subsidy structure may be overhauled in next Budget

PMO asks finance ministry to prepare paper on non-merit subsidy rejig.

The finance ministry is preparing a paper on the rationalisation of non-merit subsidies at the instance of the prime minister's office as part of a larger expenditure management plan "" a sure indication that the next Budget will see an overhaul of the subsidy structure. The ministry has been given three months to prepare the paper.

Prime Minister Manmohan Singh had hinted at a review of subsidies, especially on kerosene and LPG, in his Independence Day address. He had pointed out that with the rising cost of oil, the present subsidy regime was not tenable and could continue only at the cost of development programmes.

The finance ministry, which has already begun the ground work, made a detailed presentation before the Cabinet Committee of Economic Affairs for a new food, fertiliser and petroleum subsidy structure.

The government, on its part, already knows what it has to do: The Rangarajan committee had made concrete recommendations on petroleum subsidies, while the YK Alagh report on fertilisers dealt with the urea price mechanism.

The Rangarajan committee had favoured removal of the subsidy for LPG through a one-time increase of Rs 75 per cylinder followed by a gradual phase out of the subsidy. It had also recommended that the subsidy for kerosene should be limited to those below the poverty line.

A report on food subsidies, considered for discussion with stakeholders last year, had recommended decentralisation of procurement, discontinuing the open-ended procurement and fixing targets, developing a system of price insurance on the lines of farm income insurance programme without any subsidy allocation and introduction of food coupons to families below the poverty line.

The report had also recommended that the reimbursement of costs to the Food Corporation of India should be on cost norms rather than on actual basis.

The PMO has now recommended that states which are levying statutory duties on procurement by FCI, which deepened the subsidy burden, should stop this practice.