February 28, 2011 / 16:00 IST
Finance minister Pranab Mukherjee announced a marginal reduction in subsidies after revising the overall estimates for 2010-11 upwards. A closer look at numbers shows a surge in the subsidy bill over the previous year. The budget estimates pegged subsidies for 2010-11 at Rs 1,16,224 crore. The revised estimates put the subsidies bill at Rs 1,64,153 crore for 2010-11.
This is on the back of Rs 38,383 crore revised estimates for petroleum subsidy against Rs 3,108 crore in budget estimates of 2010-11. The total subsidy bill for 2011-12 is pegged at Rs 1,43,569 crore. This rise in subsidies owes to the elevated levels of global crude oil prices and the less than full pass through of the international prices to the domestic markets and is also reflected in fertilizer subsidies as cost of feedstock is the major cost. Following the global financial crisis, there was a brief respite; nevertheless global crude prices have started to trend up. Some of the subsidies were also not targeted properly. The Budget for 2010-11 also announced the intent of bringing all subsidy-related liabilities to fiscal accounting. It was in this context that the recent budgets have focused on restructuring the subsidy regime in fertilizers and petroleum.As a proportion of the GDP, subsidies have grown to 2.3% in 2008-09 from 1.45% in 2004-05. Below-the-line bonds issued in lieu of subsidies also rose to a level of Rs 1,10,510 crore in 2008-09 (2 per cent of the GDP). QUICK COMMENT:International investors and rating agencies are likely to react negatively to the impact. Foreign investors using macro-economic indicators as benchmarks for allocating money to India could think twice before investing. The government has clearly utilised the cushion of 3G spectrum auction to pay the subsidies bill. He perhaps expects direct transfer of subsidies to beneficiaries to enhance efficiencies and plug leakages. 
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