Retail prices of petrol and diesel haven’t been revised upwards since May 22, 2022. Urea is being sold to farmers at Rs 5,628 per tonne since November 2012. Fertiliser companies haven’t also been allowed to charge more than Rs 27,000/tonne for di-ammonium phosphate since April 2022.
The current government under Narendra Modi has not only continued, but actually slashed these prices to zero from January 2023 onwards. The total subsidy spending on the three Fs – food, fertiliser and fuel – has gone up from Rs 228,341 crore to Rs 530,959 crore between 2019-20 and 2022-23. In 2013-14, the last financial year before the Modi government took over, the figure aggregated Rs 244,717 crore. The real spike has, thus, happened post the pandemic.
It isn’t only the Centre. States, too, have substantially stepped up transfer payments through schemes rolled out in the last 2-3 years or less. Madhya Pradesh has budgeted Rs 8,000 crore in 2023-24 for the Mukhyamantri Ladli Behna Yojana (Rs 1,000 per month each to some Rs 1.25 crore women in the state) and Rs 3,230 crore for the Kisan Kalyan Yojana (Rs 4,000 annual payment to 80 lakh farming families, over and above Rs 6,000 under the Centre’s PM-Kisan). The actual spend would be higher, given that the benefits under both schemes were enhanced (to Rs 1,250/month and Rs 6,000/year) by the ruling BJP just before the recent assembly elections. The Congress government in Karnataka has provided Rs 39,815 crore for its five pre-poll “guarantees” in the budget presented this July. The full-year cost will be much more.
There’s no doubt that the above subsidies and transfer payment schemes – one can expect more in the run-up to the 2024 national elections – have helped poor and vulnerable households, especially during the Covid-induced economic crisis, and insulated most producers and consumers from the supply chain disruptions following the Russia-Ukraine war. But there are fiscal costs that neither the Centre nor states can ignore. The increasing share of government budgets going for transfers comes mainly at the expense of spending on education, health, environment, water supply, sanitation, agricultural research and extension.
These are public goods that add to human capital and boost economic productivity. Unfortunately, expenditures on them yield results only over the medium and long term. Voters want benefits that are immediate (cash transfers) and tangible (roads, bridges and other hard infrastructure). When governments too think that way, it is more than just a fiscal problem.
