Special Correspondent

Subsidy bill reaching a point where it may become unsustainable: Chidambaram

NEW DELHI: Pointing out that the improved GDP-tax ratio had provided enough leverage to the Centre to substantially increase outlays for its schemes, Finance Minister P. Chidambaram on Tuesday said the way forward was not to increase tax rates but to expand the tax base.

Replying to the debate on the Finance Bill in the Lok Sabha, he said that when the United Progressive Alliance came to power, the government inherited a GDP-tax ratio of 9.2 per cent and it rose to 12.5 per cent in 2007-08. It was likely to be around 13 per cent in 2008-09. This improvement came about despite the cut in customs and excise duties and also cuts in personal income tax rates in the current budget.

In fact, he pointed out, more money was being given to the States and Central government outlays increased vastly.

The outlay for education increased from Rs. 7,024 crore in 2003-04 to Rs. 34,400 crore in the current year. For health, it was Rs. 16,534 crore, up from Rs. 6,983 crore in 2003-04.

Admitting that the subsidy bill was large, in fact “reaching a point where it may become unsustainable,” the Minister, in reference to an observation on its size, said: “That is a decision that all of us have to take collectively.” Conceding that there were non-merit subsidies also, he said: “At some point of time we would have to take a view of how much subsidy we can bear and how it should be prioritised.”

In this context, Mr. Chidambaram said revenue and fiscal deficit was reduced, thanks to fiscal management and fiscal prudence. Revenue deficit including off-budget expenditure in 2003-04 was 3.7 per cent and it came down to 2 per cent in 2007-08.

On tax breaks for oil and gas exploration and production, Mr. Chidambaram said the notes to the Finance Bill had merely reproduced the Income Tax Department’s stated position before various tribunals and courts on the issue. He said the interpretation of Section 80IB (9), providing a seven-year tax holiday on production of oil and gas, by the tribunals and courts would be binding. The dispute would be resolved in six months.

The Minister announced full exemption in customs duty on cut and polished gem stone, while reducing the basic customs duty on newsprint from 5 to 2 per cent. He said that currently steel prices contributed to over 21 per cent of the inflation rate. Changes in import duty would come into effect immediately and changes in export duty, from the day the Finance Bill got presidential assent.

Referring to the food situation, Mr. Chidambaram said it was improving with each passing day, with a record rice and wheat production. There would be no reason for shortage.

Domestic procurement of wheat till April 28, 2008 stood at 134 lakh tonnes as against only 76 lakh tonnes last year.

The target for this year was 150 lakh tonnes. Rice procurement was pegged at 229 lakh tonnes as against 209 lakh tonnes last year. The target for this year was 270 lakh tonnes.

Ten lakh tonnes of edible oil would be released through the Public Distribution System in the current fiscal, he said adding the country had enough foodgrains to meet all requirements.