Remove subsidy on diesel, LPG by 2016: Kelkar

The Kelkar Committee has recommended sharp reduction in subsidies on petroleum, food and fertiliser, which the government said was contrary to its policy of protecting the poor.

Highlights of the Kelkar Committee report on Roadmap for Fiscal Consolidation:

Recommends immediate increase in petroleum prices and deregulation of diesel prices by 2014-15

Prices of kerosene and LPG should be revised regularly On fertiliser subsidies, efforts should be to continuously revise urea prices

Direct Taxes Code Bill, 2010 should be comprehensively reviewed before it is enacted into law for implementation

Effort should be made to expedite the implementation of the Goods and Services Tax

'Do-nothing' approach likely to result in a fiscal deficit of 6.1 per cent of GDP in 2012-13

Suggests to bring down fiscal deficit to 3.9 pc in FY15

About Rs 60,000 crore shortfall likely gross tax revenues

Subsidy estimates likely to shoot up by Rs 70,000 crore

Current account deficit may touch 4.3 per cent of GDP

If no policy interventions are made, disinvestment receipts would stand at around Rs 10,000 crore

Suggests to remove the system of levy (subsidised) sugar and the controls on the flow of non-levy sugar

Direct transfer of cash subsidies may be more efficient way of reaching the beneficiaries.

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"The government is of the view that in a developing country where a significant proportion of the population is poor, a certain level of subsidies is necessary and unavoidable, and measures must be taken to protect the poor and vulnerable sections of the society", Department of Economic Affairs (DEA) secretary Arvind Mayaram said.

He further said Committee's recommendation of withdrawal of certain subsidies is in divergence with the stated policy of the government.

The government, he clarified, has not yet taken a view on the recommendations of the Kelkar Committee, which was set up by Finance Minister P Chidambaram to suggest a roadmap for fiscal consolidation.

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The government has invited comments of stakeholders on the Kelkar panel report.

The Committee, headed by former Finance Commission Chairman Vijay Kelkar, has suggested phased elimination of subsidy on diesel and LPG in the next four years and reduction in kerosene subsidy by one-third by 2014-15.

In case of food and fertiliser subsidies, the Committee wants the government to increase the urea price and raise issue price of foodgrains at ration shops.

It cautioned that in absence of these measures, the fiscal deficit of the government could shoot up to 6.1 per cent of the Gross Domestic Product (GDP) in the current financial year. It can be contained to 5.2 per cent with the proposed reforms.

The government's guarded reaction to the recommendations comes in wake of widespread protest against its recent decision to raise price of diesel by Rs 5 per litre and capping of subsidised LPG to six per family a year.