Despite facing severe fiscal constraints, the government is unlikely to cut subsidies meant for rural poor and reduce expenses on welfare programmes in the Union Budget to be presented next month.
This is due to the probability of poor monsoons and the impending threat of El Nino induced weather vagaries.
The key to achieving fiscal consolidation goals is expected to be a focussed disinvestment programme for public sector undertakings.
“Instead, a draft cabinet note has been prepared to deal with any such eventuality so that the rural India does not suffer and farmers have adequate means to deal with the situation,” an official source told Deccan Herald.
“The cabinet note also talks about enhanced budget allocation for central government schemes like fodder development programme, Rashtriya Krishi Vikas Yojana and the National Mission on Sustainable Agriculture,” he said.
Separately, the government has prepared a six-pronged strategy on drought-mitigation measures and includes providing diesel subsidy and subsidy on procurement of seeds to farmers belonging to the drought-hit areas.
Any spending cut on schemes such Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) is also unlikely in the current budget to be presented in the second week of July, another source said.
Any huge spike in crude oil prices following Iraq crisis coupled with a deficient monsoons due to El Nino, have the potential to delay the economic revival plan of the Prime Minister Narendra Modi.
“Increase in global crude prices post Iraq development is expected to push government’s subsidy bill further making a dent on the fiscal consolidation goal.
But this will be taken care of by speeding up the divestment programme as the market conditions are favourable now,” the source said.
The government has been focussing on sectors like coal, power and steel to take forward its disinvestment programme in 2014-15 (April-March), according to a finance ministry official.
The focus will be on companies like Coal India, NHPC Ltd, Power Finance Corp, Rural Electrification Corp, and Container Corp of India.
After the gap between administered price and market rate of diesel narrowed to Rs 1.62 per litre this month, prospects have also risen for deregulation of the India’s most consumed fuel.
This will leave the government with having to pay subsidies on only LPG cylinders and kerosene.
On LPG, kerosene and fertilizer, the government is expected to provide a roadmap in the forthcoming budget for cutting subsidies on these in the next two to three years.