Government likely to cap subsidy burden at 1% of GDP in FY16: report

Fall in global crude prices to about $45 a barrel will help government cut subsidy burden substantially, EY says


Finance minister Arun Jaitley will present the eight month old NDA government’s first full budget on 28 February.  Photo: Pradeep Gaur/Mint
Finance minister Arun Jaitley will present the eight month old NDA government’s first full budget on 28 February. Photo: Pradeep Gaur/Mint

New Delhi: The government is likely to cap subsidy burden at about 1% of gross domestic product (GDP) in FY16 while restricting fiscal deficit at 3.6%, global consultancy firm EY said on Tuesday.

Fall in global crude oil prices to about $45 per barrel presently from as $108 a barrel in June 2014 will help the government cut the subsidy burden substantially, it said.

“Subsidies are likely to be reduced significantly in FY16 Budget, possibly contained well within 1% of GDP.” “This has to be a blessing for a heavily crude import dependent economy like India. Apart from an improvement in balance of trade, as domestic petroleum prices fall, more disposable incomes in the hands of domestic consumers can be allocated for other consumption goods and saving,” the company said during a presentation here on budget 2015-16.

Finance minister Arun Jaitley will present the eight month old NDA government’s first full budget on 28 February.

On the deficit front, it expects the government to maintain fiscal consolidation as announced in the last budget.

“Government likely to continue with the fiscal consolidation path by continuing to compress expenditures and taking advantage of revenue and expenditure seasonality.” There is very little room on the revenue side for substantial stimulus, government is stuck to make meet the fiscal deficit target, but there is substantial room for non revenue budgetary as well as non budgetary items, it said.

“Very substantial progress has been made to simplify the process of ease of doing business,” said Satya Poddar, partner, tax & regulatory services, EY.

For current fiscal ending 31 March, the government may be able to meet the fiscal deficit target of 4.1% of GDP. However, the quality remains poor as about 76% of the fiscal deficit up to December 2014 is accounted for by revenue deficit, it said.

Among others, the consultancy firm expects no change in the corporate tax rates in upcoming budget, removal of minimum alternate tax (MAT) on SEZs for exemption period and grant of exemption from long term capital gains tax to sponsors of real estate investment trust (REITs).

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