Missing its fiscal deficit target of 4.6 per cent of gross domestic product (GDP) by a huge margin this year, the finance ministry has tried to be realistic in its projection of 5.1 per cent for next year. In an interview with Vrishti Beniwal & Indivjal Dhasmana, Expenditure Secretary Sumit Bose says subsidies cannot be reduced drastically but will be kept under two per cent even when there are Food Security Bill and rising crude prices. Edited excerpts:
The government has projected a substantial increase in expenditure next year. Do you think fiscal deficit pressure is coming from expenditure side because we are spending more?
In the Revised Estimates (RE), we had to give a substantial increase. So, while doing the projections, we have ensured that nothing is left out. We are realistic on our expenditure. We need to do our Plan expenditure properly and curb any expenditure which is not desirable. First thing to do is to fully reflect the expenditure. That’s why there is an increase from RE in Budget Estimates (BE). We don’t want any surprises down the line. This year, there were many unforeseen and unplanned things, which should not have happened.
So, in hindsight, was that a mistake to budget for lower-than-required expenditure?
Not a mistake. This is how we learn. It’s not that consciously things were left out.
There is a provision of only Rs 40,000 crore for oil marketing companies in the Budget for 2012-13. Do you think that is enough, considering rising crude oil prices?
You must compare Rs 40,000 crore against Rs 20,000 crore, which is the BE in 2011-12. You must read this into the context of what the finance minister has said about capping subsidies.
Certain other subsidies have not been fully taken into account, like the Food Security Bill.
We have made a liberal provision of Rs 75,000 crore for food subsidy. The Food Security Bill is still in Parliament. Let’s see when it gets enacted. Obviously, for the full year you will need more, but the Bill is not going to come into effect from April 1.
The finance minister talked about revisiting some of the subsidies. How much scope do you see to do that given that the Food Subsidy Bill is on the anvil and fuel prices are beyond your control?
Even in food, we can do that by properly targeting the beneficiaries. That need not only be from the point of view of savings. It’s also about efficiency of expenditure. Today, we have subsidy at 2.4 per cent of GDP. Next year, the target is 1.9 per cent and then we will bring it down to 1.75 per cent in three years. Given the nature of subsidies, you can’t abruptly turn off the tap. If you look at fertiliser, we moved to a nutrient-based subsidy. The immediate impact is nil, because of the external environment and the prices we paid more last year. But as we move forward, there are possibilities of savings. For NPK fertiliser, subsidies have been announced which are 20 per cent lower than last year.
In urea, you still have not moved to nutrient-based subsidy.
In the case of urea, the policy is still under consideration in the government. But, again, it is not a magic wand. Whatever policy is adopted, it’s not that immediately subsidies will come down. It didn’t happen under NBS. NBS did not look at subsidy reduction. The finance minister has laid out a road map. We have to ensure we keep to that, otherwise our FRBM target itself will go haywire.
Does it mean even at the cost of high inflation, the government will pass on the burden to consumers if crude oil price goes above its projected levels?
We are not disrupting anything. Let’s see how we implement that road map. At the moment, I’m not able to give out all the details. That will happen after the Budget Session.
The effective revenue deficit has also increased this year.
It is bound to increase because between BE and RE, the major expenditure has been on subsidies.
Do you agree with the argument given in the FRBM document that completely eliminating the revenue deficit will be counter-productive to creation of capital assets?
You must see this in the context of centrally-sponsored and centrally-supported schemes. Let’s look at AIBP (Accelerated Irrigation Benefit Programme). Now, do we stop AIBP funding? That’s going as a grant to the state, but it is absolutely asset creation. There will be other problems with AIBP which the (Budget) speech talked about. (We are) addressing those problems and ensuring AIBP is not just about construction of dams and canals.
If you have to make revenue deficit zero, then you have to cut such programmes. It does not work like that. So, there are limitations in control of revenue. This is not to say that we should not be spending more on capital expenditure.
Year after year we see most of the government departments do not spend what is allocated to them in the Budget. Are you considering any reforms to ensure proper utilisation of this money?
One reform which was envisaged has come as part of the FRBM amendment. It is the medium-term expenditure framework. The recommendation came from 13th Finance Commission. It gives an indication to various ministries and departments on the sort of expenditure they can incur. It’s a firm Budget commitment. It gives indicative figures, but once they do that, they will be able to plan better for utilisation. If they have too many commitments they can prioritise second, they can prepare to implement schemes. In fact, in some schemes we did that. For instance, this new mission on food processing. We took some action towards the end of the year because that is going to be implemented by states and we wanted to give them an indication that we were moving on that line.
How are you going about Rangarajan panel’s recommendations on reclassification of expenditure?
It is under consideration in the Planning Commission. It has some ramifications for various stakeholders.
Can we see some portions of the report being implemented in the 12th Plan?
That call Planning Commission has to take. There are other parts of the report other than abolition of Plan and non-Plan expenditure. Some of those are being implemented.
