The government has implemented the One Rank One Pension scheme which will be effective July 1, 2014. The pension will be revised every five years and all war widows will be paid arrears annually. But there are discussions on whether implementing the scheme can cause the government's fiscal target to go haywire.
However, there are indications that there is already a cushion of around Rs 20,000 crore in FY16 Budget, which is expected to help the government tide over the additional expense on account of the Rs 12,000 recapitalisation package announced for public sector banks as well as the additional expense that will come in now for One Rank One Pension (OROP). So, both these items will be taken care of by this Rs 20,000 crore cushion. Hence, it is not necessary that OROP is going to have a sizeable fiscal impact, at least not in the current financial year. In fact there may be no fiscal impact because of OROP if you look at the current numbers.
But, definitely on the larger canvas, how do you balance out these kind of expenses considering the government still six months to go for the financial year to conclude. So, basically on the non-finance side, talking about subsidies, that is where the government is going to draw a very tight line. Whatever has been allocated, the government plans to strictly adhere to that. And there will not be any space for any further cuts in subsidies despite oil prices coming down.
There are two or three reasons on that account. With respect to fertilizer subsidy, there are indications that the government has not been able to move ahead in terms of any substantial reforms, especially on the front of urea. Urea subsidy pay-out in the first five months of the current year or rather first four months of the current year has already gone beyond Rs 55,000 crore. And at that pace, it is most likely that entire budgeted amount will be used up.
The space to prune on the subsidy front is very limited, hence they are going to stick to whatever is there, but no additional allotments will be made.
Coming back to the issue of how does the government plans other spends - no pushing the buck in terms of subsidy pay-outs, but it is are going to go full-throttle with capital expenditure (capex). The government has already spent Rs 86,000 odd crore between April and July. At this rate it is actually aiming to use up the entire capex by January-February in the current financial year, which also indicates that it is not planning as of now for any planned expenditure cuts. So, as of now, the fiscal situation looks comfortable, Rs 20,000 crore is the additional cushion in the Budget.
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