Expenditure on subsidies to fall over next 2 years: Government

"Over the projection period, the government expenditure on major subsidies is estimated to come down from 1.4 per cent of GDP in Budget Estimate 2017-18 to 1.3 per cent of GDP in 2019-20," according to the Medium-Term Expenditure Framework (MTEF) Statement laid in the Lok Sabha by Finance Minister Arun Jaitley on Thursday.

The government said in the document that the projection figures for food, fertiliser and food subsidies were Rs 1,75,000 crore, Rs 70,000 crore and Rs 18,000 crore, respectively, for 2018-19. The corresponding figures for 2019-20 are Rs 2,00,000 crore, Rs 70,000 and Rs 10,000 crore, respectively.

The document said that one of the main reasons for an increase in food subsidy is to meet the repayment obligations of the Food Corporation of India (FCI) to the National Small Savings Fund.

The government said the expenditure on these major subsidies has been budgeted to be Rs 2,40,339 crore in the current fiscal. Among the three, food subsidy bill comprises nearly 60 per cent of the major subsidy bill and fertiliser comprises nearly 29 per cent. The subsidy on fuel takes up the rest.

The subsidy bill as a percentage of GDP is budgeted to be 1.4 per cent in the current financial year. The ratio has been projected to decrease by 0.1 percentage point over the course of next two years.

The document noted that with diesel and petrol being fully decontrolled from January 1, 2015 the petroleum-related subsidies now cater to kerosene and LPG. In continuation of the efforts of the government to rationalise subsidies, the government has decided to increase the cost of LPG cylinders at Rs 4 per month. The ultimate aim of the government is to eliminate the subsidy on LPG cylinders by end-March 2018.

It said steps are also being taken to enhance the Direct Benefit Transfer (DBT) coverage for kerosene. "Going forward, the subsidy for petroleum products is likely to see a declining trend."

Referring to the food subsidy bill at Rs 1,45,339 crore in the Budget Estimate of 2017-18, the document said reforms in food subsidy have been initiated. Six states have automated all their Fair Price Shops (FPSs). In addition, a total of Rs 1,77,746 FPSs have been automated with electronic Point of Sale (ePoS) machines and 72 per cent ration cards have already been seeded with Aadhaar.

Making headway in fertiliser subsidy reforms, Department of Fertilisers has chalked out a programme to implement DBT in modified form through pilot projects in 16 districts.

As an outcome of neem coating of urea, Kharif 2016 was the first season when entire urea consumed came to be neem-based. This has been estimated to bring down the consumption of urea by 8.66 lakh tonnes compared to the previous year.

The savings in subsidy at approximately Rs 12,000/tonne is estimated to be over Rs 1,000 crore on this count alone. The provision for fertiliser subsidies in Budget Estimate 2017-18, however, has been retained at Revised Estimate 2016-17 level of Rs 70,000 crore.

On the overall revenue expenditure, the Finance Ministry statement says that the proportion of revenue expenditure in total outgo is budgeted to be 85.6 per cent in 2017-18. This proportion has been projected to be roughly the same in next fiscal and is projected to decrease to about 85 per cent in 2019-20.

Salary projections (net of Defence salaries) in absolute terms is, therefore, kept to Rs 1,38,122 crore in 2018-19 and Rs 1,49,457 crore in 2019-20.

Pension commitments will increase by about 10 per cent in 2018-19 and 8 per cent in 2019-20 over the previous years' estimate and projections. From the base year, pension amount of Rs 1,31,201 crore in 2017-18, MTEF projections for pensions has been kept at Rs 1,44,321 crore and Rs 1,55,867 crore in 2018-19 and 2019-20, respectively.

The document says that the total revenue expenditure of the Defence is estimated to be Rs 1,82,534 crore in Budget Estimate of the current year, excluding the Defence pensions.

The aggregate revenue expenditure in the Defence demand, excluding Defence pensions as integrated in the manner mentioned above, is expected to grow by about 10.4 per cent in 2018-19 and 8.5 per cent in 2019-20 over previous years estimates/projections. This pushes the Defence revenue expenditure to Rs 2,01,511 crore and Rs 2,18,629 crore in 2018-19 and 2019-20, respectively.

Interest payments, which constitute the largest component of the Centre's revenue expenditure, have been estimated at Rs 5,23,078 crore in Budget Estimate 2017-18. It constitutes 24 per cent of the total expenditure of the central government in the current fiscal. As a percentage of gross tax revenue, this constituted 27 per cent.

The MTEF projections for the nominal interest payments for the years 2018-19 and 2019-20 have been pegged at Rs 5,64,400 crore and Rs 6,15,000 crore, respectively.

"The interest payments nearly equal the fiscal deficit of the country. Interest payments work out to 3.1 per cent of GDP. This is partly reflective of the declining trajectory of the fiscal deficit," the Statement said.

The Statement said the Indian economy grew by 7.1 per cent in real terms in 2016-17. This was compared to the real growth rate of the economy of 8 per cent shown in 2015-16. The corresponding real growth rates for Gross Value Added (GVA) at basic prices were 6.6 per cent in 2016-17 and 7.9 per cent in 2015-16. Nominal GDP growth clocked a robust 11 per cent in 2016-17 compared to a growth rate of 9.9 per cent in 2015-16.

It said GVA at basic prices by the same measure grew by 9.7 per cent in 2016-17 as opposed to 8.5 per cent in 2015-16.

On inflation, it said inflation has been on the decline since 2014-15. Headline inflation based on Consumer Price Index declined to 4.5 per cent in 2016-17, as compared to 4.9 per cent in 2015-16 and 5.9 per cent in 2014-15. Inflation based on the Wholesale Price Index averaged at 1.7 per cent in 2016-17 as compared to (-)3.7 per cent in 2015-16 and 1.2 per cent in 2014-15.

As mentioned in the Medium Term Fiscal Policy Statement, the fiscal deficit has been projected to be kept at 3 per cent in 2018-19 and 2019-20. This is in consonance with the government's strategy of gradual reduction in fiscal deficit, balancing the twin objectives of fiscal consolidation and economic growth.

The overall tax to GDP ratio was 11.3 per cent of GDP in 2016-17, implying that gross tax revenues grew at a healthy rate of 18 per cent over 2015-16.

It is projected that in the medium term tax revenues will show the growth anticipated during the presentation of the Budget and as mentioned in the Medium Term Fiscal Policy Statement. "It is felt that any shocks to tax collections due to the introduction of Goods and Services Tax (GST) will be absorbed in the current financial year and hence the tax-GDP ratio will remain at the level of 2016-17."

However, going forward in the years 2018-19 and 2019-20, the gains from expansion of the tax base due to the introduction of GST and the increased surveillance post-demonetisation will ensure that tax-GDP ratio will increase by 30 basis points each in the next two fiscals. The tax-GDP ratios are projected to be 11.6 per cent in 2018-19 and 11.9 per cent in 2019-20.

In 2017-18, gross tax revenues are estimated to have a growth rate of 12.2 per cent, whereas in 2018-19 it is anticipated to grow at the rate of 15 per cent and in 2019-20 at the rate of 14.5 per cent, assuming a robust tax revenue growth, it said.