Finance Minister Jaswant Singh is considering replacing the mechanism of a minimum support price with income-based support to farmers.
According to government officials, Singh would place before the Union Cabinet a comprehensive concept paper on subsidies, which would suggest phasing out the big items, including food, fertiliser and petroleum subsidies.
"Cabinet clearance is essential so that Singh does not draw flak when he addresses the subsidy issue in the Budget," an official said.
Officials pointed out that food subsidy, estimated at Rs 21,200 crore (Rs 212 billion) for 2002-03, was the biggest item amounting to over 55 per cent of the major subsidies this fiscal.
While doing away with price supports would attract opposition, the alternative income subsidy was not only transparent but effective as well, he said.
"The idea is not to eliminate all subsidies in one stroke. The paper will suggest phasing out the food, oil and fertiliser subsidies over three or four years," a senior official said.
The government is also committed to phasing out the oil subsidy by increasing the prices of kerosene and liquefied petroleum gas gradually.
Though the petroleum subsidy for 2002-03 was budgeted at Rs 6,495 crore (Rs 64.95 billion), it is likely to settle at Rs 9,000 crore (Rs 90 billion).
The finance ministry has arrived at the revised figure based on a realistic estimate of the cooking gas and kerosene subsidy the government will have to provide this year.
In the Budget for 2003-04, a price increase of Rs 40 per cylinder of cooking gas is being proposed.
The price will be gradually increased to cover all costs and remove the subsidy element over the next three years, officials said.
The finance minister is likely to draw from the Expenditure Reforms Commission report on tackling the fertiliser subsidy.
With a long-term urea policy now in place, the government hopes that the subsidy based on the difference between the retention price and the controlled consumer price will not mount in the coming years.