Last year, Finance Minister Pranab Mukherjee had set an optimistic fiscal deficit target of 4.6% of GDP (Gross Domestic Product). That target just remained on paper. As reality caught up, the country's fiscal deficit zoomed to 5.9% of GDP. But people seldom learn from history. For the financial year 2012-13 (FY13), the deficit target has been pegged at 5.1% of GDP. Now, there are two key ways to the achieve that. One is, of course, by increasing revenues. The other one is by cutting expenditure. Given that subsidies form a significant part of the government's expenditure, it is almost impossible to lower the fiscal deficit without reducing subsidies. For FY13, the FM has set a subsidy target of less than 1.75% of GDP.  That is significantly lower than FY12 numbers which stood 2.5%. It must be noted that for FY12, the government's subsidy bill overshot by a whopping Rs 730 bn.
Subsidy on petroleum products was the biggest culprit for the massive jump in subsidy. In the last year's Budget, the government had assumed an average crude price of US$ 90 per barrel. In actuality, the price averaged much higher at around US$ 115. The recent Budget seems to be assuming a price of US$ 100, whereas crude prices are already hovering around US$ 125 per barrel. With tensions escalating in the Middle East, it is highly unlikely that crude prices would match with government's assumptions. And that's not all. The Food Security Act will also lead to a high subsidy burden. Any fifth grader who knows simple arithmetic would point out that the subsidy target is highly ambitious. So either the government is plain stupid, or trying to fool all of us.