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Rationalising Subsidy, Centres expenditure framework

The government thrust upon public spending to spur the economy, the finance ministry expects governments capex to rise by 25% to 3.9 lakh crore by 2019-20, driven largely by greater spending on defence, Railways, road transport and urban development.

Rationalising Subsidies:
The government expects to more than halve its petroleum subsidy bill over the next three years, from Rs 25,000 crores this year to just Rs 10,000 crores by 2019-20.

As per the medium-term expenditure framework tabled by the finance ministry in the Parliament, while fertiliser subsidies are expected to stay flat, the food subsidy bill is estimated to shoot up sharply from Rs 1.45 lakh crore this year to RS 2,00,000 crores by 2019-20.

Food, fertiliser and fuel subsidies for which the Centre has budgeted over Rs 2.4 lakh crore are expected to rise to 2.8 lakh crore by 2019-20, but the government expects the overall proportion of subsidies to GDP to come down from 1.4% to 1.3% over the same period.

With abolition of price controls over diesel and petrol prices, the government has set its eye on rationalising kerosene and LPG subsidies, with a March 2018 target for eliminating the LPG cylinder subsidy altogether by raising prices by Rs 4 each month.

Efforts are underway to bring kerosene subsidies under the direct benefit transfer regime or while making some States  kerosene-free.

On the food subsidy due to about 80 crore beneficiaries under the National Food Security Act, the government said reforms have been initiated with six States automating all fair price shops and 72% of Ration cards being seeded with Aadhaar numbers.

The main reason behind increase in food subsidy is to meet the repayment obligations of FCI (Food Corporation of India) to the National Small Savings Fund,”.

Interest payments amounting to Rs 5.23 lakh crore this year, which constitute the largest component of the government s revenue expenditure, are expected to rise nominally to Rs 6.15 lakh crore by 2019-20, but the government is confident that there will not be any  upward pressure on interest rates  owing to its borrowings.

The finance ministry has asserted that any shocks to tax collections due to the introduction of the Goods and Services Tax (GST) will be absorbed in the current financial year itself, so the tax to GDP ratio may persist at the same level this year as last year — 11.3%.

The government expects an expansion of the tax base, citing gains from GST and increased surveillance efforts post-demonetisation. “The tax-GDP ratios are projected to be 11.6% and 11.9%, in 2018-19 and 2019-20, respectively.


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