Budget 2022: Steep subsidy sums for food and fertiliser likely

Budget 2022: Subsidies have been a bugbear of the Indian economy for long

The Union Budget 2022 could allocate steep sums for food and fertiliser subsidies for 2022-23, similar to the Revised Estimates for the current fiscal year, analysts say, as global commodity prices remain elevated and the poorest sections of the society still suffer from distress caused by the Covid-19 pandemic.

In 2021-22, the food and fertiliser budgeted subsidy outlays were Rs 2.43 trillion and Rs 79,530 crore, respectively.

With the government extending the free foodgrain scheme under the Pradhan Mantri Gareeb Kalyan Ann Yojana (PMGKAY) as Covid relief, available figures show the Revised Estimates of the food subsidy for FY22 could be around Rs 3.9 trillion.

As prices rise for raw materials used to make fertilisers — potassium, nitrogen, and phosphorous — the Centre raised fertiliser subsidy by Rs 14,775 crore in May and Rs 28,655 crore in October. This takes the revised subsidy outlay to Rs 1.23 trillion for the year.

Analysts say the conditions that led to the above decisions are likely to hold true for part of next year as well.

“Food and fertiliser subsidies are functions of global commodity prices, and as the prices are expected to remain elevated, these will have to be provided for in the Budget. The expectation is that for some more time, crude prices will remain high,” said DK Srivastava, chief policy advisor, EY.

One bright spot for the exchequer this fiscal year has been fuel subsidies and increasing decontrol of petroleum product prices. While this meant that retail petrol and diesel prices touched record highs, fuel subsidies would have come down.

Sources said that of the budgeted amount of around Rs 13,000 crore, a very small amount would have been actually spent this year as prices of LPG cylinders were near their market rates while in case of petrol and diesel, the government no longer gives any subsidy. “The food subsidies may not decline in the Budget as the pandemic-related relief may continue and fertiliser subsidy may not decline as well as international prices are still high,” said S Mahendra Dev, director of Indira Gandhi Institute of Development Research.

Subsidies have been a bugbear of the Indian economy for long. But, since 2020-21, food and fertiliser outlays have risen substantially, primarily due to the pandemic.

Food subsidies, according to the Revised Estimates of FY2020-21, were pegged at Rs 4.22 trillion, which was significantly higher than the Budget Estimate of Rs 1.15 trillion. The extra spending was on account of the free food grains and pulses distribution scheme started during the first Covid wave for almost 800 million beneficiaries of the National Food Security Act (NFSA).

This extra spending not only ensured that all the additional food subsidy was taken care of, but the funds also enabled the Food Corporation of India (FCI) to clear all its pending dues from the National Small Savings Fund (NSSF), which it had borrowed over the years to balance the fiscal maths.

Just like food subsidies, the Central government adequately funded fertiliser subsidies last fiscal year (FY21) to clear all the pending dues.

It provided around Rs 1.34 trillion in the Budget, which was almost 88 per cent more than the Budget Estimate of FY21. However, in FY22, global fertiliser rates have soared due to renewed economic activity across the world and also because of the rise in gas and chemical rates, which form the backbone of the sector.