Subsidies cross trillion-rupee mark, stretch finances

Subsidies cross trillion-rupee mark, stretch finances
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First Published: Tue, Jul 07 2009. 12 30 AM IST

 For the people: A ration shop in Darjeeling, West Bengal. Indranil Bhoumik / Mint
For the people: A ration shop in Darjeeling, West Bengal. Indranil Bhoumik / Mint
Updated: Mon, Jul 13 2009. 05 23 PM IST
New Delhi: The subsidy on food and fertilizer has crossed Rs1.02 trillion in Budget 2009-10. While fertilizer subsidies have gone down by almost Rs26,000 crore, those on food have risen by Rs8,800 crore against the revised budget for 2008-09.
For the people: A ration shop in Darjeeling, West Bengal. Indranil Bhoumik / Mint
The food subsidy is expected to further rise if more people are covered under a proposed food security Act, the blueprint of which is being prepared by the food ministry. The Act promises to provide the poor 25kg wheat or rice at Rs3 a kg per household.
Subsidies have been a major component of non-Plan expenditures—typically recurring annual spending—which put undue pressure on government finances. The subsidies bill is largely on account of food, fertilizer and petroleum products.
Also, subsidies usually rise through the year and the gap between what is originally provided for in the Budget and revised through the year is vast.
The outgo on fertilizer subsidy will be given directly to farmers rather than being routed through fertilizer companies. “In due course, it is also intended to move to a system of direct transfer of subsidies to the farmers,” said Pranab Mukherjee in his Budget speech.
Subsidies have been a major component of non-Plan expenditures—typically recurring annual spending—which put undue pressure on government finances. Ahmed Raza Khan / Mint
Food subsidy is provided to distribute wheat and rice to the poor and also maintain a buffer stock. In 2008-09, food subsidy rose from Rs32,600 crore in the budget estimate to Rs43,600 crore in the revised estimate. In the new Budget, food subsidy is Rs52,500 crore, a 21% rise from the revised estimates for last year.
Expenditure secretary Sushma Nath said: “Higher food subsidy has been due to higher minimum support price (MSP) and also higher procurement of both wheat and paddy.”
MSP is the base price at which the government procures grains to be sold to the poor at subsidized rates through the public distribution system. This also serves as the base price for private traders.
In 2008-09, the MSP for rice was Rs850, 14% higher than in the previous year. The MSP on wheat was raised by 71% between 2003-04 and 2008-09.
The government has procured around 53 million tonnes of wheat and rice whereas it has the capacity to store only 25 million tonnes.
Finance secretary Ashok Chawla said the details of the food security Act still have to be worked out.
S.L. Rao, chairman of the Institute for Social and Economic Change, said subsidy amount will go up once the Act is in place.
“Offering wheat or rice at Rs3 when the current price is Rs9 will pose a burden on subsidy bill. But it is not the subsidy amount which bothers me, but who will be the beneficiary, how will the poor be defined and how will the government plug leakages. A Planning Commission study suggests Food Corporation of India (FCI) is the most corrupt public sector undertaking,” he said.
Rao said the United Progressive Alliance is experimenting with food security Act just because the National Rural Employment Guarantee Scheme has been successful and the Chhattisgarh and Andhra Pradesh governments effectively distributed wheat and rice at low rates.
The government buys rice and wheat for the Central pool through its procurement agency the FCI. The foodgrain is then sent to states and sold at subsidized rates through the public distribution system.
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First Published: Tue, Jul 07 2009. 12 30 AM IST