With the finance ministry frontloading food and fertiliser subsidies, the exchequer’s subsidy expenses rose 53 per cent in April-June, and this increase in payout was cited as one of the main reasons by the government for a lower GDP growth of 7.1 per cent as against a 7.3 per cent Gross Value Added (GVA) growth in the quarter.
Major subsidies, including those for food, fertiliser and oil, increased to Rs 92,287 crore in April-June, a rise of Rs 31,986 crore from Rs 60,301 crore payout in the corresponding period last year. A closer look at the details of subsidy payouts shows that the finance ministry has continued with the trend even in July, with the cumulative subsidy payout for April-July rising to Rs 1.058 lakh crore, compared with payout of around Rs 89,793 crore in April-July last year.
At Rs 1.058 lakh crore for April-July, the government has already reached 45.7 per cent of the total budgeted expenditure for major subsidies of Rs 2.317 lakh crore for the 2016-17 financial year.
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In April-July 2016, food subsidy stood at around Rs 63,602 crore as against Rs 43,640 crore in the same period last year, as per Ministry of Finance data. Payout for nutrient-based subsidy was Rs 8,549 crore in the first four months of 2016-17, while that for urea subsidy was around Rs 27,451 crore.
Oil subsidy was recorded at Rs 6,275 crore in April-July 2016 as against Rs 9,194 crore last year. Finance ministry officials said there has been a clearing of backlog of fertiliser subsidies from last year along with advancement of food subsidy from second quarter to first quarter, resulting in the increase in subsidy payouts.
“The food ministry had demanded special dispensation for frontloading of subsidy from second quarter to first quarter. Payout of around Rs 25,000 crore was preponed to first quarter for food subsidy and very recently another Rs 10,000 crore was released to them,” one of the officials said.
Another official said that the effect will wear off with the progress of the financial year and is unlikely to impact GDP numbers for July-September, the second quarter of this financial year.
GDP is derived by adding taxes on products and subtracting subsidies on products to GVA at basic prices.
On August 31, at the time of the release of the GDP data for April-June, Economic Affairs Secretary Shaktikanta Das had tweeted: “Q1 GDP at 7.1 per cent mainly due to 53 per cent increase in subsidy expenditure/front loading (sic) of subsidy releases from Budget”.
The GDP growth of 7.1 per cent in April-June was the slowest in the last six quarters, mainly due to slower growth in construction and agriculture sectors and contraction in the mining sector. Das had said last month that FY17 growth is expected to be better than last year and may even be close to 8 per cent as good monsoon, seventh pay commission payouts and impact of structural reforms are expected to boost growth in the coming quarters.