Home >Budget 2019 >Budget Expectations >Rural distress rises, focus likely to be on spending for the poor

NEW DELHI : Growing rural distress has upended the subsidy bill as the Union government has rushed with palliatives for the ailing farmers. The significant reduction over the last few years in petroleum subsidy—which is limited to cooking gas and kerosene—has only partially offset this additional burden.

With considerable uncertainty surrounding the progress of the annual monsoon and rural distress still a challenge, the big question is where does the finance minister raise the necessary funds in an otherwise difficult year.

Food subsidy in FY19 is up by a staggering 71% to 1.71 trillion largely on account of the higher support prices for farmers.

The government had last October announced support price for 22 crops at 50% more than the cost of production. The idea was to give at least 50% return over cost of production to farmers towards the larger goal of doubling their income. As per the interim budget presented in February by the then finance minister Piyush Goyal, food subsidy would go up to 1.84 trillion in the current fiscal.

The good news, however, is that the oil subsidy has been reduced to manageable levels in recent years on account of gradual phasing out of subsidy on petrol and diesel—to be sure, lower global oil prices have provided the requisite cushion to the FM.

Under direct benefit transfer, oil marketing companies like Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd sell liquefied petroleum gas (LPG) at market prices and the subsidy for the poor is transferred directly to their bank accounts. However, with increased use of cooking gas, the subsidy burden on the exchequer is projected to increase. The government spent over 24,800 crore in petroleum subsidy in FY19, a tad above 24,450 crore spent a year ago but this is expected to go up to 37,400 crore in FY20, a jump of 51% on account of increase in LPG usage.

The government’s cost of giving price relief to farmers on urea and other plant nutrients have risen by over 5% in FY19 to 70,000 crore from a year ago and is expected to go further up to 75,000 crore this fiscal on account of higher demand for fertilizers. However, food, petroleum and fertilizer subsidies—which make up the bulk of the government’s total subsidy outgo—have declined as a share of the country’s gross domestic product from 2.1% in FY10 to 1% in FY19, EY said in its monthly note on the economy issued in June.

In FY19, more than half of the total 2.9 trillion subsidy spending of the government went towards reducing hunger. The trend underscores the National Democratic Alliance government’s assertion that the poor have the first right on the resources of the country. The 5 July budget for FY20 is expected to have a strong bias towards spending on various schemes for the poor.

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