Susidies to be cut soon, says Rangarajan

Kolkata - The government could cut the subsidies on fuel and fertilisers soon to contain the ballooning fiscal deficit, C. Rangarajan, who heads the Prime Minister's Economic Advisory Council (PMEAC), said Friday.

"Subsidies have been growing. While there are some, like food subsidies, we cannot trifle with, there is scope for reducing subsidies on fuel and fertilisers," Rangarajan said at an event to mark the birth anniversary of P.C. Mahalanobis, founder of the Indian Statistical Institute, here.

"We must ensure that fiscal deficit is contained at the budgeted level," added Ranagarajan, who is speculated to take over the finance portfolio in the next cabinet reshuffle to be held sometime in Septemeber.

The government is targeting to bring the fiscal deficit, which stood at 5.76 percent of the gross domestic product (GDP) in 2011-12, down to 5.1 per cent in the current fiscal.

Rangarajan said there is a scope for reducing subsidies in liquid petroleum gas (LPG or cooking gas), diesel and fertiliser. "But we must build up a political consensus for good economics."

“With kerosene, I can understand that there is a sentiment (for increasing price), I am of the opinion that diesel and LPG prices have to increase,” he said, and added that LPG price decontrol should “protect” the low-income groups.

The prime minister's adviser also said that because of the high fiscal deficit it would be difficult for the government to provide a general stimulus package for the industry. But there could be some possibility of providing "some selective stimulus" to certain sectors.

"I think the stimulus package which was introduced in 2008-09...it is a bit difficult. Because we now have a high fiscal deficit."

"But within the framework of containing the fiscal deficit, it is possible to provide some selective stimulus," he said.

The change of regime in the finance ministry following Pranab Mukherjee's resignation has raised hopes of an economic stimulus package.

Indicating its unhappiness with the fiscal deficit position, the Reserve Bank of India (RBI) Thursday said the government did not have the headroom for a fiscal stimulus.

"On the domestic front, slowing growth, elevated inflation and large fiscal and current account deficits are serious concerns. The already high fiscal deficit leaves little room for the government to stimulate the economy," said Governor D. Subbarao in his foreword to the Fiscal Stability Report.

"The current account deficit is being increasingly financed by debt flows, threatening long-term sustainability," Subbarao stressed.