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The Centre has reduced its subsidy budget for food, fertiliser and fuel in the upcoming fiscal by 26.6 per cent, compared to the Revised Estimates for this fiscal.
Experts have noted that the move signals a normalisation of subsidy levels after two fiscals, which saw subsidy bills soar as the government sought to dampen the impact of the pandemic by offering a free food programme and bore the brunt of higher international fertiliser prices.
Higher food and fertiliser subsidy levels in FY21 and FY22 have been a departure from a trend of falling subsidies on both food and fertilisers between FY16 and FY20.
After the onset of the pandemic, the government had announced 5 kg of free grain per person a month, apart from the regular 5 kg quota of wheat or rice at Rs 2 and Rs 3/kg, respectively. The programme, which was initially announced for the first quarter of FY21, has been extended till March 2022.
D K Joshi, chief economist at CRISIL, said the reduction in subsidies was part of a process of normalisation as the pandemic winds down.
Aditi Nayar, principal economist at ICRA, said the Budget allocation for subsidies was in line with expectations, adding the food subsidy would likely be reinstated if the country witnesses “a moderate to severe wave of Covid-19 infections.”
Fertiliser subsidy bill for this fiscal was about 76 per cent higher than Budget Estimates due to high international prices, according to experts. “Fertiliser subsidy is to a large extent dependent on global prices of fertilisers. This fiscal global prices were very high, that’s why there was a need to increase fertiliser subsidy during the year,” said D K Pant, chief economist at India Ratings.
According to the World Bank data, in December 2021, the international price of urea had risen to $890 per tonne, up from an average of $351 per tonne in the first quarter of the fiscal, while the price of di-ammonium phosphate had risen to $745 per tonne from an average price of $574 per tonne in the same period.
Subsidy on fuels is restricted to Liquified Petroleum Gas (LPG) since the government ended the subsidy on kerosene in the previous budget. LPG subsidy for the current fiscal is estimated at Rs 6,517 crore against a budget estimate of Rs 14,073 crores.
The projected subsidy is expected to fall further to Rs 5,813 crore for the upcoming fiscal. Despite significant increases in the price of LPG since Q3FY20, the government has kept the LPG subsidy only for consumers who would otherwise have to bear high charges for the cost of transportation of LPG due to their homes.
The price of a 14.2 kg cylinder of LPG in the national capital has risen by over 50 per cent from Rs 594 in November 2020 to Rs 900 in February 2022.
