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Interim Budget 2014-15 lowered the government’s estimated fiscal deficit and reduced subsidy rollover but the burden, it seems, lies elsewhere. The departments seeking subsidies — food, fuel and fertiliser — will now have to meet additional requirements by mobilising resources from other avenues such as bonds and special banking arrangements (SBAs).
In interim Budget 2014-15 tabled in Parliament on Monday, the finance minister pegged these subsidies at Rs 2,46,400 crore, merely 9.3 per cent more than that provided in 2013-14. It was said the government would roll over only Rs 35,000 crore of subsidies to 2014-15. This has put the food and fertiliser ministries in a quandary. Together, the food, fuel and fertiliser ministries had sought an additional Rs 1,10,000 crore. But with the finance ministry budgeting for only Rs 35,000 crore towards oil subsidy, the food and fertiliser ministries will have to look for other options to raise funds.
“Everybody has to find ways to optimise expenditure,” said a finance ministry official.
For 2013-14, the food ministry had demanded Rs 40,000 crore over and above the Budget Estimate of Rs 90,000 crore, owing to higher procurement of wheat and rice, as well as increased storage costs. In 2013-14 so far, the ministry has availed of short-term bonds of Rs 8,000 crore, of the Rs 15,000 crore of bonds allowed.
The Food Corporation of India (FCI) has a cash-credit facility of about Rs 54,000 crore to meet its fund requirements.
“Too much reliance on bonds and the available cash-credit limit has its own pitfalls, as it increases the interest burden and eventually adds to the subsidy…This year (2013-14), we will manage somehow. But the real crunch will start from April, when wheat procurement will begin in full swing and we (FCI) will have to make daily payments,” said a senior official.
The finance ministry official, however, said his ministry had fully provided for the requirement of OMCs for the first three quarters of this year and the fourth quarter of last year.
“We cannot pay for more than four quarters in a year. Every year, the fourth quarter requirement is rolled over to the next financial year. Bonds and SBAs are done every year. For food and fertiliser, we will get an estimate of additional requirement only in April, when audit figures come,” he said.
For 2013-14, the Fertiliser Corporation of India had demanded about Rs 35,000 crore more than the Budget Estimate of Rs 65,971 crore. “Fertiliser Corporation of India imported a huge quantity, anticipating higher demand. How can we pay them for what was not sold?” asked the ministry official.
Though bonds and SBAs aren’t new, it is expected the burden to moblise resources will be higher this time.
According to an ICRA report, the allocation of Rs 1,15,000 crore towards food subsidy in the 2014-15 interim Budget is lower than the government’s estimate of Rs 1,24,700 crore for food subsidies after the National Food Security Act was implemented.
“For 2014-15, the subsidy for phosphorus and potassium nutrients is likely to be reduced, in light of the recent fall in global di-ammonium phosphate & muriate of potash prices. Nevertheless, the 2014-15 Budget Estimate of Rs 68,000 crore for fertiliser subsidy is likely to prove inadequate, based on the assessed spillover of fertiliser subsidy to 2014-15 from this financial year, as well as the likely escalation in the subsidy required for domestic urea manufacturing, if the proposed gas price revision is implemented from April 1, 2014,” ICRA said in a research note on Tuesday.
