Unless FM cuts subsidies, budget will be a non-starter

The present economic cost of wheat that has been calculated by the food ministry is Rs 8.40 per kg. Currently for people below the poverty line (BPL) the ration shop price is Rs 2.50 per kg, costing the exchequer Rs 5.90 per kg as subsidy. For people above the poverty line (APL) this price is fixed at Rs 6.82 per kg with a subsidy of Rs 1.58 per kg.

The story in the case of rice is no different. The economic cost for every kg of rice distributed at ration shops through the PDS is Rs 11.78. For the BPL population, this is sold at Rs 3.50 per kg, a whopping Rs 8.28 is the subsidy borne by the Centre for every kg of rice sold through the PDS. For the APL, the price currently applicable is Rs 9.05 per kg, carrying a subsidy tag of Rs 2.73 per kg.

This year, the BPL population will cost the exchequer Rs 5,240 crore for subsidising the food grains sold to this population. Of this, Rs 1,871 crore is on account of wheat and Rs 3,369 crore on account of rice.

The APL population, on the other hand will cost the Centre Rs 2,360 crore – Rs 643 crore on account of wheat and Rs 1,717 crore on account of rice. Clearly, this may the part of the Budget which is most likely to face the axe during the current Budget.

What is really scandalous, is that in December 1991, the issue price of wheat to be sold through ration shops was Rs 2.80 per kg. Today, nine years later, the BPL population can buy this wheat at less than that – Rs 2.50 per kg. Similarly, common rice which was Rs 3.77 per kg in 1991 at ration shops, can now be bought by BPL population Rs 3.50 per kg.

In the intervening period, however, support prices given to farmers by the FCI to procure these grains have grown several times. Wheat, which had a minimum support price of Rs 350 per quintal in 1994-95 to Rs 550 per quintal during the last rabi season. Procurement prices for common varieties of paddy in 1994-95 was Rs 340 per quintal and it has now touched Rs 490 per quintal. No wonder then that the finance ministry is having nightmares on the issue of a burgeoning subsidy bill.

Food subsidy provided for in the Budget for 1997-98 was Rs 7,500 crore while the actual subsidy figure was Rs 7,684 crore. But the real impact of the APL/BPL schemes implemented by the government since 1997 actually showed up in the following year when the budgeted subsidy was Rs 8,700 crore while actuals were Rs 8,487 crore.