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LPG cylinder quota hike a misdirected subsidy: Rajan

PTI | Last Updated: Thursday, January 30, 2014 - 21:35

New Delhi: Terming the increase in quota of subsidised LPG as "misdirected subsidies", RBI Governor Raghuram Rajan on Thursday said the move will end up benefiting people who can afford to pay market rates.

"...What one should be careful about is expanding the misdirected subsidies in the system. We have to be very careful because we need to spend on very important things we are not spending on," he told on a television channel.

When asked whether hike in LPG quota was a "misdirected subsidy", Rajan nodded in affirmation.

"I believe there is a certain amount of population that can benefit from subsidised LPG cylinders. But beyond certain point you are reaching people who can well afford to pay for it. Now whose pocket is it coming from. Its coming from the pockets of people who are getting subsidised," he said.

The Union Cabinet today raised the quota of subsidised LPG to 12 cylinders from nine at present, and will cost Rs 5,000 crore in additional subsidy annually.

"(In raising the quota) you are going from 87 percent to 97 percent (of LPG consumers)... If you are subsidising 97 percent of the population, you are basically subsidising people who are paying for it themselves," Rajan said.

Asked if the government will be able to meet its fiscal deficit target of 4.8 percent of the GDP, he said heavy expenditure cuts and other initiatives will help the government reach very near the target.

As regards growth, he said it would be slightly below 5 percent in the current fiscal but would improve in the coming years as steps taken by the government will come into play.

"For the year as a whole, it will be between 4.5 and 5 percent," Rajan said.

The economic growth rate slipped to decade's low of 5 percent in 2012-13. It has recorded a growth of 4.6 percent in the first half of the current fiscal.

First Published: Thursday, January 30, 2014 - 21:32
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