Sops story: Oil, fertilisers, power jack up bill by 3.9%

ECONOMIC SURVEY 2005-06\ SUBSIDIES

The bill for major subsidies is up 3.9% from a year ago.

The UPA government has not been able to reduce its expenditure on subsidies. The Economic Survey has estimated that the bill for major subsidies (mainly on fertilisers, petroleum and power) for 2005-06 will cost the government Rs 46,358 crore, up 3.9 per cent from the revised figures of the last year.

The increase in food subsidy is the lowest in the past decade "" at just 1.55 per cent in 2005-06, against 2.54 per cent in 2004-05 and 4.1 per cent in 2003-04.

The Survey has estimated the bill for 2005-06 at Rs 26,200 crore, up 1.55 per cent from the last year, but this annual increase of 1.55 per cent is considerably lower than the over-27 per cent increase in every year from 2000 to 2003.

This implies that, despite numerous schemes such as minimum support price for grain, highly subsidised welfare measures and special drought and flood interventions, there has only been a marginal increase in the food subsidy in the last three years, compared with the period from 1995 to 2003.

The Survey points out that the rising subsidies in the petroleum sector have led to higher burden on oil companies.

Despite a subsidy-sharing mechanism between the upstream companies and the oil marketing companies, the latter have suffered huge under-recoveries on this account, which have doubled from Rs 9,274 crore in 2003-04 to Rs 20,146 crore in 2004-05.

With the unprecedented rise in the prices of petroleum and given the sizable production through high-cost feed stock in urea units, the Survey has said the fertiliser subsidy has risen from Rs 11,847 crore in 2003-04 to Rs15,662 crore in 2004-05.

The Survey also adds that this subsidy is likely to exceed the Budget estimate of Rs 16,254 crore in 2005-06 due to a steep increase in feedstock and raw material costs.

However, the government has saved a subsidy of around $88 million till December 2005, from the commissioning of a joint venture project between Iifco, Kribhco and Oman Oil Company.

Gross subsidy in the power sector to agriculture, domestic consumers and other states is projected to be Rs 35,632 crore, slightly less than Rs 36,187 crore in 2004-05.

The direct transfers from state governments to utilities are Rs 11,562 crore in 2005-06, but an uncovered subsidy of about Rs 16,000 crore remains, the Survey has said.

This indicates the large potential that reforms have in improving the electricity sector and also the fiscal position of states.

The share of subsidies in the GDP fell to 1.31 per cent in 2005-06 from 1.45 per cent in 2004-05 for the second consecutive time. In 2002-03, it was 1.66 per cent.

The Survey, however, cautions that this decline needs to be seen in context of the huge outgo seen during 2002-03 and 2003-04 to address the drought situation during these years.