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Government for restructuring food, fertilizer subsidies

By Our Special Correspondent

NEW DELHI, DEC. 23. The Government today put before Parliament some options to prune the mounting subsidy bill, placed at Rs. 1,16,000 crores for 2003-04. These include restructuring the food subsidy system to introduce food coupons, doing away with the fertilizer subsidy in the present form and gradually reducing the subsidy on LPG (cooking gas) while adopting a more cautious approach in reducing that on kerosene. Along with these measures, raising user charges for social and other services has been recommended.

The proposals come in the form of a report on subsidies in India, prepared by the Finance Ministry with assistance from the National Institute of Public Finance and Policy, which was placed in Parliament today. According to the report, there are three reasons for the increase in recent years. The first is the moving of the petroleum sector subsidies to a transparent system of budgetary subsidies and delay in the announced phase out of subsidies on kerosene supplied through the public distribution system (PDS) and domestic LPG; second, the increase in explicit budgetary subsidies on food and fertilizer; and third, the increase in input costs unaccompanied by any increase in recovery rates on a variety of economic and social services.

Food coupons

The report says that any restructuring has to address the issue of food subsidy and suggests that the support prices for foodgrains should be kept at the C2 level recommended by the Commission on Agricultural Costs and Prices. The C2 level includes all cash costs and imputed cost of family labour. Besides, to contain operational costs, the report suggests that reimbursement of expenses to the Food Corporation of India should be based on normative costs and the actual quantities involved. As for the foodgrains supplied through the PDS, it said that the system of dual prices encouraged leakages and instead suggested a uniform price policy with a system of food coupons for below the poverty line families. The system may be implemented in phases, it said.

Suggesting that the fertilizer subsidy in the present form be done away with, the report says that urea imports be decanalised and a flat rate subsidy system be introduced with two different rates for domestic producers and importers in the short run. In the medium term, the rate should become one. It also suggests that given the problem of domestic availability of natural gas, the cheapest feedstock, the option of setting up fertilizer plants in countries where natural gas is available in plenty could be considered. `LPG subsidy ineffective'

On LPG and PDS kerosene subsidies, the report says that they seem to be ineffective in serving the desired objectives. Therefore, the domestic LPG subsidy could be gradually reduced or at least substantially restricted, while a more cautious approach should be pursued in the reduction of kerosene subsidies, the report suggests.

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