Global Economy

Centre looks to trim subsidy bill next fiscal

New Delhi: The government is looking to trim its overall subsidy bill in 2022-23, and is likely to peg food and fertiliser subsidies at about Rs 2.60 lakh crore and Rs 90,000 crore, respectively, in the upcoming budget, lower than the revised estimates for FY22.

Total subsidy bill for the current fiscal is likely to be around Rs 5.35-5.45 lakh crore and the government is keen to lower it next financial year, officials said.

The fiscal deficit for FY23 is likely to be pegged at 6.5% of the gross domestic product (GDP) against 6.8% of GDP budgeted for FY22, in line with the glide path announced in the last budget, they said.

“Subsidy on food and fertilisers will be in sync with our fiscal goals.” one of the officials said.

Food subsidy bill for the current financial year is likely to be about Rs 3.90 lakh crore in the revised estimates, higher than the budgeted Rs 2.43 lakh crore, but lower than Rs 4.22 lakh crore in FY21.

Food subsidy in FY22 will be higher than the budgeted due to the extension of scheme for the distribution of free food grains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) until March 2022 due to the Covid-19 pandemic. Aggregate cost of the PMGKAY for FY22 is estimated at Rs 1.47 lakh crore, officials said.

The government had provisioned Rs 79,530 crore for the fertiliser subsidy for FY22 in the budget.

It, however, had to provide additional funds twice due to increase in prices of fertiliser and supply side disruptions, which is expected to almost double the subsidy bill to Rs 1.41 lakh crore.

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Officials in the finance ministry said the allocation towards fertiliser subsidy for FY23 will be lower than the revised estimates.

Aditi Nayar, chief economist at credit rating agency ICRA, said that out of the aggregate cost of Rs 1.47 lakh crore of PMGKY scheme this year, outgo of Rs 90,000 crore has already been absorbed by the cushion created in this year’s budget on account of the prepayment of FCI’s loans in FY21. This would mean that the additional outlay towards the food subsidy would only be Rs 60,000 crore, she said.

“We foresee the outlay for food subsidy at Rs 2.5 trillion (Rs 2.5 lakh crore) for FY2023, in our base scenario, covering the normal requirement under the National Food Security Act (NFSA),” Nayar said.

ICRA pegs the requirement for fertiliser subsidy at Rs 1.3-1.4 lakh crore for FY23, almost similar to this year’s fertiliser subsidy bill, driven by elevated international prices.

The government had kickstarted rationalisation of the petroleum subsidy in FY22 budget, cutting it from Rs 39,055 crore in 2020-21 to Rs 14,073 crore.

An official from the finance ministry said the actual spending is likely to be less than one third for this year. It will be brought down further in FY23, the person said.

Madan Sabnavis, chief economist at Bank of Baroda, said, “The subsidy largely will depend on the revenue projection of the government. But I do not see any major reduction in food or fertiliser subsidies. There are political commitments also, apart from fiscal considerations.”

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Sabnavis said there was already gradual rationalisation of subsidies, including reduction in the petroleum subsidy. Besides, direct benefit transfer had also reduced leakages to a great extent, he said.


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