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Wednesday, June 16, 2021

FCI borrowings to be more than Centre’s food subsidy bill

By getting FCI to borrow more to fund food subsidy, Centre has managed to keep its own outgo lower.

Written by Nushaiba Iqbal , Harish Damodaran | New Delhi |
Updated: February 2, 2020 10:32:36 am
Union Budget 2020, Budget 2020, Budget, Union Budget, Budget 2020 income tax slabs, income tax slabs, income tax slabs Budget, Business news, Indian Express The Centre’s total outgo on all subsidies fell from Rs 2,54,631.84 crore to Rs 2,22,953.75 crore between 2013-14 and 2018-19.

Finance Minister Nirmala Sitharaman has neither raised the retail rate of urea nor the issue prices of rice and wheat sold through the public distribution system (PDS) in the Union Budget for 2020-21. Yet, the combined subsidy bill on these two accounts is expected to be Rs 77,337 crore lower than the budgeted figure for the current fiscal.

The reduction in the food subsidy bill, from Rs 1,84,220 crore in the budget estimate for 2019-20 to Rs 1,08,688.35 crore, has been brought about by a simple accounting sleight of hand. Page 43 of the latest Receipts Budget shows the Food Corporation of India (FCI) undertaking additional borrowings of Rs 1,10,000 crore from the National Small Savings Fund (NSSF) in 2019-20. That figure is budgeted to go up to Rs 1,36,600 crore in the coming fiscal. By getting the FCI to borrow more to fund the food subsidy — which arises from the corporation having to sell wheat at Rs 2 per kg and rice at Rs 3 per kg for the PDS, as against their respective actual economic cost of around Rs 25 and Rs 36 — the Centre has managed to keep its own outgo lower than what it would have been.

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The Receipts Budgets for various years shows the investment by the NSSF in FCI, in the form of outstanding loans carrying an annual interest of 8.4%, at Rs 70,000 crore at the end of 2016-17, Rs 1,21,000 crore in 2017-18, Rs 1,91,000 crore in 2018-19, Rs 2,54,600 crore in 2019-20 (revised estimate) and Rs 3,22,800 crore in 2020-21 (budget estimates). In the coming fiscal, FCI will borrow a whopping Rs 1,36,600 crore, of which Rs 68,400 crore would go towards repaying earlier loans. This “off-budget” borrowings of FCI are more than the Centre’s Rs 1,15,569.68 crore budgeted food subsidy bill for 2020-21.


Move on expected lines

The Budget has not raised central issue price of PDS rice and wheat. It has also refrained from hiking farmgate prices of urea or reducing the fixed per-tonne concession on decontrolled fertilisers. This was to be expected, given that the Budget is as much a political as a bland economic document. Any rationalisation measures in these two big-ticket subsidy items is likely to be only outside the Budget, when there will be no Parliament session either.

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It is even worse for fertiliser companies that have no captive borrowing source like the NSSF. For 2019-20, the budgeted fertiliser subsidy was Rs 79,996 crore, while the revised figure is marginally higher at Rs 79,997.85 crore. The fertiliser industry claims that its unpaid subsidy arrears, which will be carried forward to the coming fiscal, would be Rs 40,000-42,000 crore, with domestic urea manufacturers alone being owed some Rs 25,000 crore and not paid since August 2019.

But notwithstanding this huge carry forward payment dues, the fertiliser subsidy for 2020-21 has been pegged even lower at Rs 71,309 crore. At the same time, there is no increase in the maximum retail price of urea that companies can charge from farmers. Sitharaman has merely stated that the prevailing incentive (subsidy) regime “encourages excessive use of chemical fertilisers” and “our government shall encourage balanced use of all kinds of fertilisers, including the traditional organic and other innovative fertilisers”. According to an industry source, “our only hope now is that there will be an off-budget increase in retail prices, which will improve our liquidity and reduce the huge interest outgo on borrowings that are not funded through the subsidy”.

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The Centre’s total outgo on all subsidies fell from Rs 2,54,631.84 crore to Rs 2,22,953.75 crore between 2013-14 and 2018-19. This period also saw the subsidy bill come down both as a share of India’s GDP (from 2.27% to 1.16%) and the Centre’s total expenditures (from 16.33% to 9.63%). But as the accompanying table shows, much of this dip was courtesy subsidy on petroleum products. While the Narendra Modi government could bite the bullet on decontrol of diesel prices and implementing targeted direct benefit transfers in the case of LPG cylinders, it has not been able to do the same with food and fertiliser subsidies. The other major subsidy item that has witnessed a significant rise, from a mere Rs 6,000 crore in 2014-15 to Rs 21,175 crore in 2020-21, is interest subvention to banks for providing short term credit to farmers at below-market rates.

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