Budget 2025: Subsidy bill set to fall to 6-year low

First, the discontinuation of the free, additional 5-kg per month extra foodgrains allocation to the 813.5 million public distribution system (PDS) beneficiaries.

The extra rice or wheat — over and above the regular 5 kg/person/month PDS quota under the National Food Security Act, 2013 — was given during the post-Covid period from April 2020 to December 2022. That ended from January 2023. With the annual grain offtake through the PDS and other schemes falling — from 93.7 million tonnes (mt) in 2020-21, 105.8 mt in 2021-22 and 93.1 mt in 2022-23, to 67.7 mt in 2023-24 and a projected 63.9 mt in 2024-24 – and the government’s procurement as well as stocks in godowns declining (translating into reduced carrying cost of buffer beyond operational requirements), the food subsidy is budgeted at just Rs 203,420 crore in the coming fiscal.

The above subsidy hit an all-time-high of Rs 541,330 crore in 2020-21, when the Finance Minister also made a one-time provision to clear outstanding dues to the Food Corporation of India. The latter incurs an “economic cost” towards procuring, distributing and storing grain, with these estimated at Rs 39.75/kg for rice and Rs 27.74/kg for wheat. The subsidy arises from the same grain being issued entirely free to PDS beneficiaries.

The second major reason for the Centre’s lower subsidy provision is fertiliser. The fertiliser subsidy peaked at Rs 251,339 crore in 2022-23, which resulted from high global prices following Russia’s invasion of Ukraine.  Landed per-tonne prices of imported urea, di-ammonium phosphate (DAP) and muriate of potash (MOP) rose to $900-1,000 (in November-January 2021-22), $950-960 (July 2022) and $590 (March 2022 to March 2023) respectively. Currently, these are ruling at $423-427 for urea, $633 for DAP and $283-285 for MOP. Even prices of key inputs, phosphoric acid and ammonia, have eased to $1,055 and $400 per tonne, from their highs of $1,715 (July-September 2022) and $1,575 (April 2022).

Landed prices have, however, firmed up a bit since around May, especially post the disruptions to vessel movements in the Red Sea from attacks by Yemen’s Houthi rebels. It has led to MOP cargoes from Russia, for instance, taking 45-50 days voyage time to reach India via the Cape of Good Hope, instead of only 30-33 days through the Suez Canal-Red Sea route. The fertiliser subsidy for 2024-25 has also, therefore, overshot the budget estimate of Rs 164,000 crore by nearly Rs 7,300 crore.

“The Budget Estimate of Rs 167,887 crore for the coming fiscal is higher than what was provided in 2024-25. Whether  more would be required will depend on geopolitical factors and their impact, if any, on global prices of both finished fertilisers and inputs,” said N. Suresh Krishnan, chairman of the Fertiliser Association of India.

Significantly, there are no increases in the prices of fertilisers for farmers or that of foodgrains sold through the PDS in the price. The maximum retail price of urea has been unchanged since November 2012, while the issue price of PDS grains was slashed from Rs 2-3/kg to zero with effect from January 2023.