Government subsidy burden at 10-year high

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The Indian government's subsidy burden is expected to reach 2.5 percent of the country's gross domestic product (GDP) for the fiscal ending March 31, the highest in 10 years, due to higher price of crude oil and other commodities, a report showed on Tuesday.

The total subsidy is expected to increase to Rs.2,23,000 crore in the current financial year, which is 2.5 percent of GDP at the current market price which is estimated to remain at Rs.89,12,178 crore, PHD Chamber said in a report.

In 2010-11, subsidy burden was Rs.1,64,153 crore or 2.08 percent of the GDP.

The volume of subsidies as a percent of GDP has been increasing continuously since 2003-04. However, the ratio of subsidies as a percentage of GDP in 2011-12 is projected to surpass even the level attained during the global financial crisis of 2008-09, when it stood at 2.3 percent.

"The growing subsidy burden of the government has shrunk its funds which could have been diverted towards capital formation. The share of gross fixed capital formation in GDP has been stagnating and its impact is also visible from the moderating industry performance," said Sandip Somany, president, PHD Chamber.

"The problems of mounting subsidy burden of the government, coupled with rising international crude oil prices could escalate in the coming years making the fiscal burden uncontrollable," Somany said.

Fiscal deficit is expected to surge to 5.6 percent of GDP for the fiscal ending March 31, against the budgetary target of 4.6 percent.

Fiscal deficit surpassed the budgetary target in the first 10 moths of the year. In April-January period fiscal deficit reached 105 percent of the budgetary estimated as compared to 60 percent during the same period of last year.

"Decontrol of petrol prices has not done much to reduce the subsidy bill as diesel, kerosene and LPG still remain subsidised. It is necessary to deregulate diesel prices to ease the burden of fuel subsidies," said Somany.