Need to manage subsidies in a targeted manner to control fiscal deficit: Government sources

New Delhi: In view of the increasing pressure on government finances due to cut in taxes on fuel, the Center needs to manage subsidies more strictly and in a targeted manner, official sources said.
The government had on May 23 cut excise duty on petrol by Rs 8 per liter and diesel by Rs 6 per liter to pacify record high inflation, sacrificing revenue of Rs 1 lakh crore annually.
Earlier in April, the Center had approved a subsidy of Rs 60,939.23 crore for Phosphatic and Potash (P&K) fertilisers, including bite mark, for the first six months of this financial year. This has put an additional burden on the fiscal deficit.
In addition, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has been extended for six months till September 2022 to help the weaker sections of the population.
Sources said with the cut in excise duty on diesel and petrol affecting revenue collection, meeting the additional expenditure on food and fertilizer subsidies would be a challenge.
Under PMGKAY, the government provides 5 kg of free ration per person per month, in addition to its normal quota of food grains. National Food Security Act,
From April 2020 to September 2022, the government has allocated 1,003 lakh metric tonnes of food grains for PMGKAY, benefiting 80 crore people for two and a half years.
In addition, during the initial months of the pandemic, the government transferred Rs 500 per month to women for three months. Jan Dhan The account holders transferred a total of Rs 1,500 to 20 crore women.
Sources further said that India’s macroeconomic fundamentals are strong to deal with global challenges and the central government is committed to stick to the fiscal deficit target of 6.4 per cent of GDP for the current fiscal.
Fiscal deficit is the difference between the total revenue and expenditure of the government. It also indicates the total borrowing required by the government to bridge the gap. The fiscal deficit for the previous financial year stood at 6.7 per cent of GDP, slightly lower than the estimated 6.9 per cent. budget financial year’23.
Sources said the government is taking steps to deal with high crude oil prices in the international market.
India meets about 85 per cent of its oil demand through imports and a weak rupee makes inbound shipments costlier.
Commodity prices including crude oil are trading higher due to the Russo-Ukraine war and this has added to inflationary pressures across the country including India.
The government is committed to follow the path of fiscal consolidation and this year’s budget has projected the fiscal deficit at 6.4 per cent of GDP. Sources said steps are being taken to deal with the situation arising out of rising crude oil prices.
Acknowledging that there are strong global constraints, sources said the country’s macroeconomic fundamentals are strong enough to meet the challenges.
However, he said that the current account deficit (Paddy) is expected to remain higher on the back of firming crude oil prices.
For the past several years, India had a low CAD but this year there are headwinds on that front. However, the macroeconomic situation and forex reserves are better than before, said sources.

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