Govt takes a small step, but ignores subsidies

Govt takes a small step, but ignores subsidies
Comment E-mail Print Share
First Published: Sat, Mar 01 2008. 12 18 AM IST

Updated: Sat, Mar 01 2008. 12 18 AM IST
New Delhi: With the piloting of smart cards for distributing foodgrain under the public distribution system (PDS) in Delhi and Haryana in fiscal 2008-09, the government has finally taken a small step towards ensuring efficient allocation of major subsidies that account for 8 paise out of a rupee spent by the government.
At Rs71,431 crore in 2008-09, the total subsidy bill is about one-third more than the Rs55,184 crore deficit in the revenue account that the government failed to bridge.
The revenue deficit is the excess of government expenditure over its earnings in a year, which the government was legally mandated to bring down to zero by end-2009.
Smart cards embedded with details of the beneficiary are expected to significantly reduce the diversion and misuse of PDS cards meant for the poorest that the country’s top planning body, the Planning Commission, estimates to be really benefiting only 20% of those intended.
However, the government failed to find a consensus on trying out a similar system for fertilizer subsidies, which will take up 43% of the total subsidy bill in 2008-09 and 11% of the government’s current expenditure.
Although the food subsidy, at Rs32,667 crore next fiscal year, accounts for 46% of the total outgo on this head, agricultural experts believe subsidies given to farmers for fertilizer use is a greater evil.
Many of the experts, at a pre-Budget meeting with the finance minister, had lobbied for a lower subsidy regime, or at the very minimum, a changeover to an efficient, better-targeted delivery system, which would involve a decontrol of prices leading to a simpler system reimbursing poorer farmers, at least those who owned less than 2ha, through a coupon.
In fact, the current fiscal year has been the worst in recent history for food subsidy, which went up by 31% over 2006-07 to Rs31,546 crore.
Fertilizer subsidies have been on the rise since the United Progressive Alliance government took over in 2004. Thanks mainly to the rising contribution of imported urea, which got costlier as oil prices rose, fertilizer subsidy bill rose by 34% in 2004-05, 16% in 2005-06, 42% again the next year, and 16% in the current year. The government has very optimistically budgeted it at Rs30,986 crore in its final year, but sticking to that depends clearly on oil prices.
Says Ashok Gulati, director in Asia, International Food Policy Research Institute: “The finance minister has wasted a golden opportunity to help the really poor farmer who need the subsidy. Right now, it is the richer farmers, those who have at least four hectares, are using the subsidy.”
Gulati also felt that the flow of cheap subsidies to farmers, coming at the cost of the Central exchequer, were distorting the use of subsidies, harming the soil in the long run. “In Punjab, the ratio of use now is an atrocious and untenable 20:6:1.” In other words, 20 units of nitrogen fertilizer are used for every six units of phosphates and only one unit of potassium. “The result of this can be very uncertain. While the plants look green and nice, there are not enough ears of wheat, for instance.”
The government has been forced to issue off-budget bonds to fertilizer companies to compensate them for the higher price of imported urea, a practice that has been severely frowned upon by public finance experts and even the International Monetary Fund. In the current fiscal year, the government has issued Rs7,500 crore worth of bonds to these companies.
But cutting subsidies was probably an option the government could ill-afford this time, facing national elections in 2009. As finance minister P. Chidambaram himself said, announcing the PDS smart card in his Budget speech, “strengthening the PDS would mean adequate supplies, reasonable subsidies and efficient delivery of the subsidized food.” Says Gulati, “looks like the agriculture minister is not as lucky as him, else there would be reforms in fertilizer subsidy, too.”
Comment E-mail Print Share
First Published: Sat, Mar 01 2008. 12 18 AM IST