Budget 2016: Subsidy reforms remain on paper in rural sector

Low global prices for oil and fertilisers help contain total outgo at Rs 2,50,000 crore

Written by Harish Damodaran | New Delhi | Updated: March 1, 2016 5:49 am
union budget, budget, budget 2016, budget today, budget this year, rural sector, agriculture budget, 2016 agriculture budget, budget news, india news No attempt has been made to increase farm gate prices of urea. (Express Photo)

Arun Jaitley’s budget hardly has anything to offer as far as rationalisation of farm subsidies and their replacement with targeted direct benefit transfers (DBT) goes.

There is only a token announcement proposing introduction of DBT “on pilot basis for fertiliser in a few districts across the country, with a view to improve the quality of service delivery to farmers”.

At the same time, no attempt has been made to increase farm gate prices of urea, which the latest Economic Survey had recommended in order to prevent diversion of the nutrient for non-agricultural applications, mainly at the expense of small and marginal farmers. The maximum retail price of urea has been at Rs 5,360 per tonne since November 2012.

Watch video: The Big Picture Of Arun Jaitley’s Budget 2016

The Budget has provided Rs 70,000 crore for 2016-17 towards fertiliser subsidy. Satish Chander, director-general of the Fertiliser Association of India, said that the amount would suffice to meet the requirement for the coming fiscal, if international prices of urea, di-ammonium phosphate (DAP), muritate of potash (MOP) remain at current low levels.

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“But we will be starting the new fiscal with outstanding subsidy dues of Rs 45,000 crore payable to the industry. The Rs 70,000 crore provision may take care of the subsidy for 2016-17 per se, but it will not cover the arrears built up from past years,” he told The Indian Express.


Landed prices of imported urea are now around $250 per tonne (against $310 a year ago), while falling from $520 to $400 for DAP and from $320 to $285 per tonne for MOP.

A much bigger saving for the Centre from low global commodity prices is, however, on account of petroleum subsidy. From a level of Rs 85,378.16 crore in 2013-14, this subsidy is expected to fall to Rs 30,000 crore this year and further to Rs 26,947 crore for 2016-17.

The only petro-products to be subsidised in the coming fiscal are LPG (Rs 19,802.79 crore) and kerosene (Rs 7,144.21 crore). Diesel and petrol, on the other hand, have gone from being subsidised to net-taxed fuels. The Centre has, since June 2014, raised the specific excise duty on diesel from Rs 3.56 to Rs 17.33 per litre and that on petrol from Rs 9.48 to Rs 21.48 per litre. The annual revenue bonanza to the exchequer from these hikes — hence not allowing consumers to fully benefit from the slide in international crude prices —is estimated at around Rs 150,000 crore.

The one subsidy head that has recorded a substantial jump in the last three years — unlike petroleum and fertiliser — is food. The reason for this is PDS issue prices for rice and wheat, which have remained unchanged for well over a decade, even as procurement prices paid to farmers have gone up alongside mounting volumes.

For 2016-17, the Food Corporation of India’s ‘economic cost’ for procurement, storage and distribution of wheat has been assessed at Rs 23.45 per kg, while being Rs 32.67/kg for rice. Against this, the central issue price for below poverty line consumers has been kept at Rs 4.15/kg for wheat and at Rs 5.65/kg for rice since July 2000. Even for above poverty line consumers, prices were last raised in July 2002, when they were fixed at Rs 6.10/kg for wheat and at Rs 7.95/kg for common rice.

“The Centre has managed to contain its overall subsidy bill within Rs 250,000-260,000 crore. The existing low global prices of oil and fertilisers mean there is no pressure to reform either. And the chances of it are even more remote when the government has entered its third year, which is the case now,” an economist pointed out.

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