Finance Commission to bring bonds into fiscal system:Cabinet

New Delhi, July 31 (UNI) Faced with the daunting task of bringing the rising food, fertiliser and oil subsidies into the Budget system without affecting fiscal targets, the government today decided to entrust the job with the 13th Finance Commission headed by Mr Vijay Kelkar.

The government recently announced oil bonds worth Rs 94,600 crore to partly set-off the huge losses of oil marketing companies due to under-recoveries arising from galloping prices in the international market and a relatively stable retail prices.

It has also issued bonds worth Rs 7,500 crore to fertiliser companies as the subsidies on this count are expected to treble to Rs 1,19,000 crore, while Rs 32.667 core has been allocated in the Budget 2008-09 for food subsidy under the PDS.

Finance Minister P Chidambaram has, in his Budget speech, expressed confidence that the government would bring down the revenue deficit by one per cent and fiscal deficit by 2.5 per cent.

However, experts fear that the fiscal deficit would rise to 3.5 per cent even if the bonds are kept out of the system and to as much as 5 per cent if these are accounted for in the Budget. Further, the implementation of the Fifth Pay Commission recommendations and the Rs 66,000 crore farm loan waiver are expected to put additional pressure on the fiscal situation.

The government is bound, under the Fiscal Responsibility and Budget Management Act (FRBM), to eliminate revenue deficit by 2008-09 and bring down the fiscal deficit to 3 per cent of the GDP by this time.

The decision to leave the issue of fiscal accounting of the bonds to the Finance Commission was taken at a Cabinet meeting, Information and Broadcasting Minister Priya Ranjan Dasmunsi told reporters.

''Having regard to the need to bring the liabilities of the Central Government on account of oil, food and fertiliser bonds into fiscal acounting, and the impact of various other obligations of the Central Government on the deficit targets, the Commission may review the road map for fiscal adjustment and suggest a suitably revised roadmap with a view to maintaining the gains of fiscal consolidation through 2010 to 2015,'' a press note on the Cabinet decision said.

Mr Chidambaram had announced the move in the Budget. ''I acknowledge that significant liabilities of the Government on account of oil, food and fertilizer bonds are currently below the line. This accounting arrangement is consistent with past practice.

''Nevertheless, our fiscal and revenue deficits are understated to that extent. There is a need to bring these liabilities into our fiscal accounting. As a first step, I have shown these liabilities clearly in 'Budget at a Glance'.

''After the obligations on account of the Sixth Central Pay Commission become clear, I intend to request the Thirteenth Finance Commission to revisit the roadmap for fiscal adjustment and suggest a suitably revised roadmap,'' the Finance Minister had said in his Budget speech.

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