The Rs 5,000 crore (Rs 50 billion) allocation to compensate states for a possible revenue loss owing to the coming into effect of the value-added tax from April 1 is a measure to help states shift comfortably to the new tax regime, officials said on Tuesday.

"Going by the experience in Haryana, we do not see a shortfall. But the amount has been provided as a measure of comfort," expenditure secretary D Swarup told Business Standard.

He also said the government intended to extend the cash management system, which at present is applicable to seven ministries, to cover more ministries and departments. The move follows a review by the government and the Reserve Bank of India [Get Quote].

The cash management system was introduced to help the government plan its borrowings better and avoid bunching of expenditure. The Centre also proposes to consult stakeholders on the restructuring of subsidies and prepare a policy document over the next three-four months.

A report on reworking subsidies has already been submitted by the National Institute of Public Finance and Policy.

"When it comes to subsidies, it is like the common pastures concept where one beneficiary leaves his sheep for grazing as soon as the other is not looking at the pasture. Similarly, people are more bothered about the subsidy that is available to someone else," Chief Economic Adviser Ashok Lahiri said.

The government has also proposed to raise the corpus of the Contingency Fund of India from Rs 50 crore (Rs 500 million) to Rs 500 crore (Rs 5 billion) from the next financial year. The corpus was last increased in the seventies. The move has been undertaken against the backdrop of the spending on tsunami relief, for which the Centre has so far sanctioned Rs 3,400 crore (Rs 34 billion).

With monies available with the Contingency Fund of India, the government will be better placed to spend as soon as the need arises instead of waiting for parliamentary approval.

As per the Planning Commission's estimates, the relief and rehabilitation expenditure in the tsunami affected areas is around Rs 10,200 crore (Rs 102 billion).

Money matters

• The Rs 5,000 crore allocation is to compensate states for a possible revenue loss owing to the introduction of the value-added tax
• The government intends to extend the cash management system to cover more ministries and departments
• The Centre also proposes to consult stakeholders on the restructuring of subsidies and prepare a policy document over the next three-four months
• It has also been proposed to raise the corpus of the Contingency Fund of India from Rs 50 crore to Rs 500 crore from the next financial year