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Tightrope walk on subsidy rejig

New Delhi, Aug. 16: Spooked by a huge subsidy bill and scared of voter angst, the government is planning a “pragmatic restructuring of subsidies” that will force consumers to pay more for oil and soothe farmers with higher support price.

While the subsidy on oil may be pruned by mixing a price increase with a mild tax reprieve, farmers are likely to get a lift from a higher bonus on paddy procurement.

The proposal is yet to be finalised as the ministries concerned are negotiating furiously among themselves to minimise their burden.

However, after the debate dies down, it is likely that there will be a small rise in the price of petroleum products, including cooking gas, along with a bonus to rice growers from October that will raise the procurement price of paddy by Rs 50 a quintal.

The paddy largesse will cost the exchequer Rs 1,000 crore, but officials feel the outgo will pay dividends at the forthcoming elections in Punjab.

Prime Minister Manmohan Singh had alluded to the subsidy strategy in his Independence Day speech yesterday, when he stressed on higher remuneration for farmers and limiting the subsidy on oil.

Top North Block officials said the government plans to issue Rs 28,300 crore of oil bonds. It has already received approvals to issue Rs 14,150 crore of such bonds. Beyond this, the deficit between global and domestic prices would be met either through price hikes or tax cuts.

The officials said the average price of the basket of crude for India crossed $70 a barrel last month after ruling at $66.95 in June and $67.29 in May. Despite the recent decline in global oil prices, the price is still over $73, the officials added. While the price hike in June did offer the oil companies some relief, they are still left with large uncovered deficits. This was more so in the case of cooking gas.

Finance ministry officials said they were pressing for a hike of Rs 50 per cylinder in the price of cooking gas. However, the actual increase would depend on “a political consensus”.

“While political realities have to be kept in view, the fact is, unless some way is found the government will either be saddled with unbearable debt because of the oil bill or the oil companies will start posting huge losses .... so some kind of realism, which brings minor price hikes, has to come forth,” officials said.

However, in the case of paddy, the reverse is the case. Officials admitted that they had earlier too considered the bonus of Rs 50 on top of a price hike of Rs 10 a quintal.

However, the cabinet had agreed to the price hike but not to the bonus, mainly because of opposition from the finance ministry. But now with Punjab elections round the corner, the bonus is almost a certainty.

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