Explicit Budget Subsidies To Drop 28% To Rs 4 Trillion In FY24

NEW DELHI: The Union government’s total expenditure on explicit subsidies – food, fertiliser and LPG – is likely to drop 28% to Rs 3.98 trillion in the current fiscal year, from Rs 5.49 trillion in FY23. This is due to the softening of global prices of soil nutrients and the termination of the extra grains supplies under the National Food Securities Act effective December 2022, according to information gathered from various government sources.

This means subsidy expenditure this year will be the lowest since FY19 (Rs 2.36 trillion). In FY21, the government incurred an all-time high subsidy spend of Rs 7.14 trillion partly because of provisioning of Rs 3.8 trillion towards repayment of loans taken from the National Small Savings Funds to finance food subsidies.

The Budget Estimate of the total spending on the three subsidies in the current fiscal is Rs 3.74 trillion, with Rs 1.97 trillion for food, and Rs Rs 1.75 trillion for fertilisers.

The rise in total subsidy over the BE this year is still lower than in recent years. “Unless there is a sharp spike in the global price of fertilisers in the last quarter of the current fiscal, overall expenditure on account of subsidies should be substantially lower than last fiscal,” an official said.

According to ballpark calculations, subsidies in FY25 could cross Rs 4.15 trillion if the annual rise in the minimum support prices (MSP) of rice and wheat in the next year crop year is at the same level as in the current year, and global prices of fertilisers broadly remain at the current year’s levels.

To cover the additional expenses due to the rise in global prices in recent months, the government last month had provided an additional Rs 13,351 crore under the fertiliser subsidy against the budget estimates (BE) of Rs 1.75 trillion for the current fiscal.

Sources said after a recent increase in global price diammonium phosphate (DAP) prices from lower levels prevailed in the first four months of current fiscal, overall fertiliser subsidy for FY24 would also depend on the future price trajectory of the soil nutrients, which the country imports to meet two-thirds of its domestic consumption.

Global prices of DAP fell by 110% to $ 454/tonne in June, 2023 from a record high of $ 954/tonne in April, 2022. However, the price of critical soil nutrients has risen to $ 535/tonne last month.

However, fertiliser subsidy in FY24 is likely to be less than the record outgo of Rs 2.53 trillion last fiscal owing to the spike in global commodity prices. It would still be for the fourth year in a row that subsidies on soil nutrients would cross Rs 1 trillion.

In terms of volume, imports account for a third of domestic soil nutrients consumption of around 65 million tonne (MT) annually

Last month, the government has made an additional provision of Rs 5,589 crore towards food subsidy largely to cover extra spending on the free grains scheme also referred as Pradhan Mantri Garib Kalyana Anna Yojana (PMGKAY) against the budget estimate of Rs 1.97 trillion in the current fiscal.

The government had spent Rs 2.87 trillion on account of food subsidy because of additional foodgrains provided under PMGKAY in addition to highly subsidised food grains supplied under National Food Security Act during first three quarters of FY23.

PMGKAY or free ration scheme which was subsumed with NFSA from January 2023 for one year. Under the scheme around 48 MT of foodgrains are supplied to 800 million beneficiaries annually.

The government has extended the free ration scheme for five years till end of 2028 which would cost the exchequer around Rs 11.8 trillion due to a projected increase of 7%-8% in the minimum support price (MSP) of the relevant crops – rice and wheat and coarse grains– annually, and other costs such as transportation, storage and incidentals.

Sources said because of the Food Corporation of India’s sale of more than 5 million tonne (MT) of wheat in the open market so far this fiscal, the subsidy burden could decline by around Rs 15,000 to Rs 16,000 crore by end of FY24.

“We have realised about Rs 10,000 crore by selling wheat in the open market this fiscal so far,” a food ministry official told FE. The government is aiming to sell 10 MT of wheat in the open market from FCI stock to curb price rise by the end of FY24.

Meanwhile, with the expansion of 7.5 million additional LPG connections to be released the Pradhan Mantri Ujjwala Yojana (PMUY) in 3 years under the scheme, the total subsidy outgo for LPG this fiscal is estimated at Rs 9,800 crore. The subsidy under the PMUY has been increased to Rs 6,110 crore in FY23 from Rs 1,569 crore in FY22.

Source: The Financial Express

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