Prime Minister Narendra Modi today set up Expenditure Management Commission, headed by former RBI Governor Bimal Jalan, that will suggest ways to reduce food, fertiliser and oil subsidies and narrow the fiscal deficit.

The Commission is expected to submit its interim report before Budget 2015-16 and the final report before Budget 2016-17, an official statement said.

Former finance secretary Sumit Bose and former RBI deputy governor Subir Gokarn are members of the Commission.

Additional Secretary, Department of Expenditure, Ministry of Finance, will be an ex-officio member and a senior officer with finance/expenditure experience will be member-secretary, it said. Talking to PTI, Jalan said: "The terms for reference would be shortly issued."

Finance Minister Arun Jaitley in his Budget speed had announced setting of the Commission that will look into various aspects of expenditure reforms to be undertaken by the Government.

The panel has been set up as there is a need to review the allocative and operational efficiencies of the government expenditure to achieve maximum output.

Jaitley in the Budget speech had said: "I also propose to overhaul the subsidy regime, including food and petroleum subsidies, and make it more targeted while providing full protection to the marginalised, poor and SC/STs. A new urea policy would also be formulated."

The subsidy bill on food, petroleum and fertilisers is estimated at Rs 2,51,397.25 crore for 2014-15, up 2.47 per cent over the previous fiscal. It was Rs 2,45,451.50 crore in the revised estimates for 2013-14.