More food schemes, oil sops bloat the bill

ECONOMIC SURVEY 2004-05/ SUBSIDIES

The Economic Survey today called for better targeting of subsidies aimed at benefiting the poor. Lower subsidy for the food and petroleum sectors has already brought down the Centre's subsidy bill by about 2.6 per cent during the current year.

At Rs 43,516 crore, the subsidies will be 9.1 per cent of the total government expenditure during 2004-05 compared with Rs 44,709 crore in 2003-04.

The government commissioned the National Institute of Public Finance and Policy for a study last year to identify inefficiencies in subsidy distribution and suggest measures for them.

The study pointed out that a large part of the bloated food subsidy bill could be attributed to the relatively high minimum support prices, exclusive attention to wheat and rice, limited areas of procurement operations and inefficiencies in the operations of the Food Corporation of India (FCI).

The share of subsidy in the total expenditure was as high as 12.4 per cent in 1990-91 but fell to 7.5 per cent in 1995-96.

The Economic Survey attributed the rise in the subsidy bill in the last two years to higher allocations for the food-for-work programme and enhanced coverage under Antyodya Anna Yojana and other welfare schemes.

The increase was also because of petroleum subsidies being brought on the Budget in 2002-03. The under recoveries of oil companies were part of the oil pool deficit under the administered price mechanism prevalent till March 2002.

The survey said the undulating pattern observed in the subsidies arose mainly from the expenditure on food subsidies, which was determined increasingly by the minimum support price of foodgrains, highly subsidised welfare schemes and special interventions in drought-affected years.

"A part of the decline in major subsidies in the current fiscal year is attributable to lower budgetary subsidies in respect of the petroleum sector," said the survey.

The NIPFP suggested a three-pronged approach to reduce the food subsidy bill. It said the minimum support price should not exceed the level recommended by the commission on agricultural costs and prices. It also talked of reimbursement to the FCI based on normative costs and actual quantities. It also made a case for gradual implementation of food stamps scheme.

The study also suggested that the benefit of fertiliser subsidy be shared between farmers and the fertiliser industry in the ratio of 62:38. It also recommended decanalising urea imports and providing a flat rate concession that converged into a uniform rate in the medium-term.

In respect of petroleum subsidies, the study said they were non-transparent, regressive in incidence of benefits and not promoting the main objective of increased access to clean fuels.