constituted - of Planning Commission
constituted - of Planning Commission constituted - of Planning Commission
The Thirteenth Finance Commission therefore made normative projections withregard to future expenditure on subsidies, keeping in mind the need for reformas well as the need to better target subsidies to enhance the access of targetsections of the population to key merit goods. In this respect, the Commissiondigressed from the estimates of Ministry of Finance which had assumed anannual growth of 5 per cent for food, fertilizer and fuel subsidies.As per the MTFPS 2011-12, the medium term projection for subsidies hasfactored in 5 per cent year on year increase in absolute terms. It has been statedthat the policy on subsidies has to be reworked along with reforms in deliverymechanism in order to not exceed the above mentioned projections. Anyslippage on this account would impact the future fiscal consolidation process.The document also states that Government has firmly established the practice ofproviding petroleum and fertilizer subsidy in cash instead of securities.Government would like to continue with this practice of extending Governmentsubsidy in cash. This is a major step towards bringing in all subsidy relatedliabilities into Government’s fiscal accounting and overall correction in subsidyoutgo may be seen in this context.The practice of providing working capital loan assistance to FCI on marketlinked rate has helped in reducing their reliance on high cost funds. This in turnhas reduced the interest cost for providing food security. This practice will becontinued in the coming years. FCI may consider the possibility of furtherrationalizing their administrative cost and States are being requested to join theDecentralised Procurement System in order to bring down the overall cost ofdelivering food security to the nation.Based on the assumptions that current price level may prevail during 2011-12 inthe world commodity markets and factoring in impact of reform measures,Working Group Report on Centre’s Financial ResourcesPage-36
provision for fertilizer subsidy has been kept at `49,998 crore in B.E. 2011-12.Food subsidy is estimated at `60, 573 crore in B.E. 2011-12. In BE 2011-12,petroleum subsidy including the oil marketing companies to compensate forunder recoveries are also provided at `23, 640 crore. It was mentioned that thepresent level of subsidy provision was premised on the assumption that therewould not be major variations in the international market in fertilizer andpetroleum product prices during the entire span of 2011-12. At the same time, itwas also assumed that the allotted quantity outgo under Targeted PublicDistribution System (TPDS) and procurement costs would by and large remainstable during the year. It is further stated that there is a need to focus on furthermeasures and means to ensure the effective utilization of these provisions andcap this expenditure to create further fiscal space for increased investment inphysical and social infrastructure.The projections of the Group are based on the aggregate of individual subsidiesdiscussed below:Food Subsidy: Expenditure on Food Subsidy is projected to increase during theEleventh Plan by 93.35 per cent from `31,328 crore in 2007-08 to `60,573 crorein 2011-12 (BE). During the Tenth Plan period, however, this subsidy remainedmore or less static. While making its estimation on Food subsidy, the ThirteenthFinance Commission stated that the intention behind providing food subsidywas to improve the food security of the vulnerable sections of society. With thisin mind, the Commission allowed for 50 per cent subsidy on the minimumsupport price (MSP) to BPL families and full subsidy for the beneficiaries underAntyodaya Anna Yojna (AAY). These subsidy figures were based on thecalculations of the Department of Food and Public Distribution which assumedMSP to increase 10 per cent annually. On this basis, the average annual growthin food subsidies projected by the Thirteenth Finance Commission is 8.87 percent.Working Group Report on Centre’s Financial ResourcesPage-37
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The Thirteenth Finance <strong>Commission</strong> therefore made normative projections withregard to future expenditure on subsidies, keeping in mind the need for reformas well as the need to better target subsidies to enhance the access <strong>of</strong> targetsections <strong>of</strong> the population to key merit goods. In this respect, the <strong>Commission</strong>digressed from the estimates <strong>of</strong> Ministry <strong>of</strong> Finance which had assumed anannual growth <strong>of</strong> 5 per cent for food, fertilizer and fuel subsidies.As per the MTFPS 2011-12, the medium term projection for subsidies hasfactored in 5 per cent year on year increase in absolute terms. It has been statedthat the policy on subsidies has to be reworked along with reforms in deliverymechanism in order to not exceed the above mentioned projections. Anyslippage on this account would impact the future fiscal consolidation process.The document also states that Government has firmly established the practice <strong>of</strong>providing petroleum and fertilizer subsidy in cash instead <strong>of</strong> securities.Government would like to continue with this practice <strong>of</strong> extending Governmentsubsidy in cash. This is a major step towards bringing in all subsidy relatedliabilities into Government’s fiscal accounting and overall correction in subsidyoutgo may be seen in this context.The practice <strong>of</strong> providing working capital loan assistance to FCI on marketlinked rate has helped in reducing their reliance on high cost funds. This in turnhas reduced the interest cost for providing food security. This practice will becontinued in the coming years. FCI may consider the possibility <strong>of</strong> furtherrationalizing their administrative cost and States are being requested to join theDecentralised Procurement System in order to bring down the overall cost <strong>of</strong>delivering food security to the nation.Based on the assumptions that current price level may prevail during 2011-12 inthe world commodity markets and factoring in impact <strong>of</strong> reform measures,Working Group Report on Centre’s Financial ResourcesPage-36
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