Food, fertiliser bills push govt subsidy up three times in FY21

The government spent Rs 5.3 trillion in food subsidies during the pandemic-hit last year--over five-fold increase over 2019-20 when it spent Rs 1.08 trillion

The Union government overshot its expenditure on subsidies in 2020-21 by 11 per cent despite paying less on account of petroleum and fertiliser subsidies. In 2019-20, it had managed to keep its subsidy at 98 per cent of the revised estimates for the year.

The increase in total subsidy outgo was primarily because it paid more on account of food subsidy which overshot the estimates by 24 per cent or Rs 1 trillion. The government spent Rs 5.3 trillion in food subsidies during the pandemic hit last year which was more than fivefold increase over 2019-20 when it spent Rs 1.08 trillion on this account.

According to figures released by the Controller General of Accounts on Monday, among all the major subsidies, it was petroleum subsidy at Rs 36,178.43 crore, which was the lowest at 93 per cent of the revised estimates presented in the General Budget in February 2021. This implies that petroleum subsidy on cooking fuel LPG and kerosene was less that what was estimated despite the Atmanirbhar package, which gave beneficiaries three free cylinders under Pradhan Mantri Ujjwala Yojana. In the current year, the government anticipates no spending on kerosene subsidy since consumers have moved to LPG-based cooking. Those who have LPG connections do not get any subsidised kerosene under the government policy.

By contrast, food subsidy overshot FY2021 revised estimate by a highest 24.3 per cent because of payment of dues to Food Corporation of India during the year. The government had earlier planned to pay them in the current 2021-22. “This suggests a cushion of Rs. 1.0 trillion in FY2022 within the budgeted level of expenditure, which will help to absorb the already announced costs related to free foodgrain and fertiliser subsidy, as well as the expected enhancement in the MGNREGA allocation that may be needed following the second Covid surge,” said Aditi Nayar, chief economist, ICRA.

According to a CARE Ratings analysis, there has been a sharp increase in the spending towards subsidies aggregating Rs 4.6 trillion in the quarter ending March 2021 as against the previous quarter when it was Rs 0.7 trillion. “Total subsidies for the full year have almost tripled during FY21 compared with the previous year owing to payment of dues to FCI towards foodgrains which was announced in Budget 2021-22 and higher payment towards fertiliser subsidies,” said the analysis.

Both the nutrient based fertiliser subsidy and urea subsidy, were, however, lower at 96 per cent and 95 per cent of the revised estimates during 2020-21. The government, therefore, managed to save Rs 6,026 crore during the year in fertiliser subsidy. Both these subsidies were 58 per cent higher in 2020-21 than what was paid in 2019-20. The increase was because of high fertiliser prices.