Subsidy overload

Subsidy overload
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First Published: Fri, Feb 13 2009. 12 18 AM IST
Updated: Fri, Feb 13 2009. 12 18 AM IST
New Delhi: Food and fertilizer subsidies accounted for around 90% of the original subsidy budget estimates of Rs71,431 crore that then Finance Minister P Chidambaram presented in 2008-09. As the fiscal year draws to a close, one finds that both these subsidies have overshot the original budget estimate by a substantial margin. Fertilizer subsidy has overshot the original budget estimate of Rs30,986 cr by 275% and is expected to be Rs116,278 cr for the year. Food subsidy too has overshot the original estimate by over 50% and is expected to touch f Rs50,000 crore for fiscal 09 as against the Rs32,667 crore originally estimated.
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There were a number of reasons for this. In case of fertilizers, government policies like nutrient-based pricing of fertilizers that reduce the price of complex fertilizer for farmers by a fifth, addition of complex fertilizers to the concession list in addition to economic factors like rising commodity prices in 2008 and depreciation of rupee against the dollar added to the subsidy burden.
For food, experts point out that in addition to rising global food prices the steep rise can also be attributed to record foodgrain procurement of at around 51 million tonne. While the minimum support prices for procurement was increased, the issue price was kept the same. As on October 2008, the total foodgrain stocks in the official kitty stood at 30 million tonne, nearly 14 million tonne over the buffer stocking norms of 16.2 million tonnes.
The subsidy burden for the taxpayer will only increase if one takes into account off budget subsidies like oil and fertilizer bonds. RBI said in its third quarter monetary review that India’s fiscal deficit would increase by 1.1% or Rs58,000 crore if off budget oil and fertilizer bonds are included. Of this, Rs44,000 crore will be on account of the oil bonds and Rs14,000 crore on account of fertilizer bonds.
Subsidies like food and fertiliser are meant for the weaker sections but almost seldom reach them. Mostly, it is the middle-income group in the country that benefits from these. It would seem then that this expenditure on part of the government is merely wastage of the taxpayer’s money.
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First Published: Fri, Feb 13 2009. 12 18 AM IST