|
 Most of the 20 percent cut in the budget for subsidies results from
lower global oil prices rather than structural changes, with the
government's appetite for reform tempered by a heavy local election
defeat in New Delhi this month.
"The total subsidy bill could come down to around 2 trillion rupees
($32 billion)," a senior government official, who has direct
knowledge of the matter, told Reuters. That calculation was echoed
by another source privy to budget discussions.
Fuel subsidies are expected to drop by around two-thirds to 220-230
billion rupees in the fiscal year that starts on April 1, thanks
above all to a halving of international oil prices to around $60 a
barrel.
The sources said Finance Minister Arun Jaitley was likely to set the
total budget for subsidies at about $32 billion, down from $40
billion in the current financial year.
It will be the first full budget presented since Modi's Bharatiya
Janata Party swept to power in India last May. It produced an
interim budget in July that was largely designed by the outgoing
Congress party government.
The numbers imply four-fifths or $6.5 billion of the total subsidy
savings will come from lower fuel subsidy costs. Other subsidy costs
will only be cut by around 5 percent.
That could disappoint investors, who see the Feb. 28 budget as a
test of Modi's stomach for unpopular reforms, with some critical
that he has not moved faster to revive the economy.
"The direction of subsidy reduction is perfect but we need more to
be done," said Deven Choksey, managing director at Mumbai brokerage
K.R. Choksey Securities, who called for more welfare schemes,
including fertilisers, to shift to direct cash payments to avoid
fraud.
The sources suggested that the focus on savings would be on cutting
waste rather than more radical free market efforts some policy
advisers have been lobbying for.
According to calculations described by the first source, lower oil
prices combined with measures to deregulate fuel prices and clamp
down on fuel benefit fraud will account for four-fifths of the
savings.
The launch of direct transfer of funds into bank accounts of over
100 million households earlier this year for subsidized cooking gas
alone is expected to contribute over one billion dollars toward
overall savings next year.
Nearly 100 billion rupees ($1.6 billion) of the savings could come
from clamping down on corruption in fertilizer distribution and
adjusting food subsidies, he said.
The officials said the thrust of the budget was to improve the
economic environment by trying to spark consumer demand and
investment without overshooting a fiscal deficit target of 3.6
percent of GDP.
[to top of second column] |
Lower subsidy costs would help the government increase funding for
Modi's dream projects like railways, roads, solar power and support
to exports while honoring deficit commitments closely watched by
ratings agencies.
India's vast but decrepit state railways have sought to nearly
double spending on new infrastructure to 500 billion rupees in the
upcoming rail budget for 2015/16, a senior Railways Ministry source
said.
FOOD WELFARE
Modi and his Bharatiya Janata Party ideologically support weaning
voters off distorting subsidies.
But Modi needs to win state elections to implement that agenda in
parliament, and a resounding defeat in the high-profile Delhi state
poll this month may force him to reconsider some proposals.
"The finance minister will have to meet investors' expectations
without inviting a political backlash," said the second official.
Modi is expected to quietly delay implementation of a food aid law
passed by the last government that would widen distribution of
ultra-cheap grains to two-thirds of the population.
Delaying the implementation of food scheme could, along with a
smaller increase to government-set farm-gate prices, avert 200-300
billion rupees in extra spending on food subsidies, said the first
official.
Despite calls from policy advisers to end subsidies on fertilisers,
the officials said the government favored deregulating urea prices
in a phased manner, to avoid "protests inside and outside the
parliament".
"It is not easy. But we can save about 50 billion rupees by plugging
leakages," said the first official, referring to scams to abuse the
fertilizer subsidy.
Welfare reform is highly sensitive in India, where nearly 70 percent
of the 1.25 billion population lives on $1.50 a day or less,
according to the Asian Development Bank.
(Additional reporting by Abhishek Vishnoi in Mumbai; Editing by
Frank Jack Daniel)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
