File Photo: Union Finance Minister Arun Jaitley
Government today said it is committed to pursuing subsidy reforms by efficient targeting of subsidies to the poor and needy while saving the 'scarce financial resources' for infrastructure and development needs.
Stating that it was essential to gradually reduce expenditure on subsidy through reforms to meet fiscal deficit targets, Finance Minister Arun Jaitey also said that the Seventh Pay Commission award "poses a risk".
The outlay on salary is estimated to go up to Rs 1.16 lakh crore in 2016-17 and Rs 1.28 lakh crore in 2017-18 from Rs 1 lakh crore this fiscal. In case of pension, the expenditure is estimated to rise to Rs 1.02 lakh crore in 2016-17 and Rs 1.12 lakh crore in 2017-18 from Rs 88,521 crore this fiscal.
In his Medium-Term Expenditure Framework Statement tabled in Parliament, Mr Jaitley however said that the macro-economic scenario has improved significantly on back of higher growth and subdued inflation. He also exuded confidence that interest rates will decline in coming years.
"Macro-economic outcomes have improved significantly, primarily with the revival of economic growth and subsidence of inflationary tendencies," Mr Jaitley said.
GDP has improved from 6.9 per cent in 2013-14 to 7.3 per cent in 2014-15. It's expected to be 8-8.5 per cent in the current financial year.
On expenditure control measures, Mr Jaitley said the government is committed to "progressively pursuing subsidy reforms in a manner that will ensure efficient targeting of subsidies to the poor and needy while saving scarce financial resources for investment in infrastructure and pursuit of new development programme".
Referring to policy decisions like deregulation of oil taken by the government in 2014-15, Jaitley said it has helped in rationalising expenditure, ensuring fiscal discipline and creating space for financing welfare programme.
On the price situation, he said the headline WPI inflation averaged (-) 2.4 per cent during April-June 2015. The retail inflation, measured by CPI, declined to 6 per cent in 2014-15 from 9.5 per cent in 2013-14 and averaged 5.1 per cent in April-June 2015.
"With fiscal deficit coming down, and easing of inflationary pressure, it's expected that interest rates would be falling in years to come," he said.
RBI, since January 2015, has loosened key benchmark rates by a total of 0.75 per cent in three tranches and may reduce it further depending on macro-economic data and monsoon.
The government, Mr Jaitley said, is committed to bringing down the fiscal deficit to 3.5 per cent in 2016-17, and 3 per cent in 2017-18. For the current fiscal, it has been pegged at 3.9 per cent of GDP.
"Fiscal consolidation strategy of the government hinges on reclaiming high growth in gross tax revenues achieved in the past. This is also essential for creating space for financing programmes of the government," he said.
The government, he added, will focus on improving household savings and investment.
Gross domestic saving declined from 33.9 per cent in 2011-12 to 30.6 per cent in 2013-14 while gross fixed capital formation came down from 31.4 per cent in 2011-12 to 28.7 per cent in 2014-15.