Govt may shift chunk of FY21 subsidy burden to next fiscal
2 min read 22 Oct 2020, 02:00 PM ISTThe Centre often rolls over subsidy bill to the next financial year to keep fiscal deficit in check. In FY19, the finance ministry had deferred payment of food subsidy bill of over ₹69,000 crore to meet the fiscal deficit target of 3.4% of GDP
PremiumNEW DELHI: The finance ministry may shift a chunk of its subsidy burden from this year to the next fiscal, a practice it discontinued in FY20, as it expects the subsidy bill to top the ₹2.3 trillion budgeted. The rise in overall subsidies is the likely result of free ration and gas cylinders provided to the poor as a response to the coronavirus pandemic.
"We expect all major subsidies to rise significantly in FY21. While food subsidy will rise because of the free ration provided under the Garib Kalyan Yojana and Atmanirbhar package, fertilizer subsidy will rise due to bumper crops both in Kharif and Rabi seasons. Petroleum subsidy is also expected to see an increase because of free cooking gas cylinders provided under the Garib Kalyan Yojana," a finance ministry official said under condition of anonymity.
Under the ₹1.93 trillion Garib Kalyan Yojana, about 800 million people were provided 5 kg of wheat or rice each month for free over and above the 5 kg they are entitled to. Women of 83 million poor families will be provided free cooking gas cylinders under the Ujjwala scheme. Under the Atmanirbhar Yojana, the government has allocated ₹3,500 crore for providing free food supplies for migrant labours.
According to data from the Controller General of Accounts (CGA), till August the government had exhausted 57% of its allocated subsidy bill which includes 62% of food subsidy, 45% of nutrient based fertilizer subsidy, 68% of urea subsidy and 40% of petroleum subsidy even as it breached this year's fiscal deficit.
The Centre often rolls over subsidy bill to the next financial year to keep fiscal deficit in check. In FY19, the finance ministry had deferred payment of food subsidy bill of over ₹69,000 crore to meet the fiscal deficit target of 3.4% of GDP.
An CAG audit of the Food Corporation of India in 2017 revealed that it had to pay a huge amount of interest on funds raised from external sources, as it did not get the food subsidy reimbursement in time from the government. FCI also faces delays in recovering receivables from ministries, departments and state governments.
The short allocation of funds by the finance ministry towards the food subsidy is because of the competing financial priorities of the government, FCI told CAG during the audit. The CAG, in a separate report released in January 2019, had criticised the Narendra Modi government for borrowing through off-budget channels to finance capital and revenue spending in 2016-17, a practice that masks the true extent of fiscal and revenue deficits.
In the Union Budget for FY21, finance minister Nirmala Sitharaman exhibiting greater fiscal transparency around off-budget financing, had disclosed the government’s below the line borrowings including those from National Social Security Fund (NSSF), especially to fund the food subsidy bill.
For FY21, government has budgeted to borrow ₹1.36 trillion through NSSF compared to ₹1.1 trillion in FY20.
In February, the government had presented the Budget targeting fiscal deficit at 3.5% of GDP but the assumptions made then do not hold true following the pandemic.
Madan Sabnavis, chief economist at Care Ratings, said only free ration to the poor is likely to cost the exchequer around ₹90,000 crore. “Fiscal slippage would be quite wide this year and we expect central government deficit to be in the region of 9% in FY21," he added.
