Budget 2013-14: 'Rationalise fertiliser subsidy to improve fiscal health'

The International Monetary Fund (IMF) has said India needs to rationalise its fertiliser subsidies to ease burden on government's purse and utilise the funds for infrastructure development among others.

The IMF in its annual report also welcomed government's move towards direct cash transfer of subsidies using the Unique Identification Authority of India (UIDAI).

"Directors stressed, however, that rationalising fuel and fertiliser subsidies is essential to create fiscal space and make the adjustment more equitable. They supported the reorientation of spending from untargeted subsidies to infrastructure investment and social spending," it said.

The Executive Directors welcomed the government's fiscal roadmap and underscored the importance of quality and sustainability of fiscal consolidation.

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They welcomed the implementation of direct cash transfers using the UIDAI, the IMF report added.

The government's budgetary allocation for fertiliser subsidies for the current fiscal was Rs 61,256 crore, but it is likely to cross Rs 1,00,000 crore, putting pressure on fiscal health.

In absolute terms, the fiscal deficit or gap between expenditure and revenue receipts stood at Rs 4,04,699 crore at the end of December 2012, according to the data released by Controller General of Accounts (CGA). Government has estimated the fiscal deficit for 2012-13 at Rs 5,13,590 crore.

The Executive Directors of the global agency in their report stressed on "...focus on sustainable reforms would rebuild confidence more than reaching deficit targets with one-off measures."

"With spending pressures, such as the National Food Security Bill, likely to rise under the 12th Plan, the need to reorient expenditure toward socially and economically productive areas is vital," the report said.

However, reforming the fuel and fertiliser subsidies should be the central plank of expenditure rationalisation as the Kelkar committee has recommended, it added.

The committee on roadmap for fiscal consolidation, headed by former Finance Commission Chairman Vijay Kelkar, has recommended that the most urgent reform required on the fertiliser subsidy front is revision in the price of urea.

"On subsidy reform, various pilot schemes are under way to move toward direct cash transfers and the use of the UID to replace current delivery mechanisms. They expect that by 2016-17 cash transfers are expected to be in place for key subsidies, which will reduce the fuel and fertiliser subsidy bill," IMF said.