The Narendra Modi government has allocated a total amount of Rs 1,86,878.68 crore towards food and fertiliser subsidy for 2020-21, less than the Rs 2,64,216 crore budgeted for the current fiscal. This is despite no rationalisation measures announced in the latest Union Budget with regard to these two big-ticket subsidy items. Thus, there’s no increase in the Central issue price of Rs 2/kg for wheat and Rs 3/kg for rice sold through the public distribution system (PDS), which are way below their corresponding “economic cost” of Rs 26.84 and Rs 37.27 projected for 2020-21. Nor has the budget proposed any hike in the maximum retail price (MRP) of urea — at Rs 5,360 per tonne, it is a fraction of the industry’s average production cost of around Rs 24,000 — or a lowering of the per-tonne concession on phosphate, potash and complex fertilisers whose rates are technically decontrolled.
A reduction in the government’s subsidy bill without PDS issue price or urea MRP rationalisation is possible only by forcing the Food Corporation of India (FCI) and fertiliser companies to take on the additional burden. That’s precisely what the government has done. In 2020-21, FCI’s borrowings of Rs 1,36,600 crore from the National Small Savings Fund (NSSF) are estimated to be higher than the Centre’s own food subsidy of Rs 1,15,569.68 crore. The corporation’s outstanding loans from NSSF are expected to touch Rs 3,22,800 crore by the end of the fiscal. A significant chunk of the fertiliser subsidy of Rs 71,309 crore for the new fiscal will, similarly, go to clear carry-forward dues of some Rs 42,000 crore. If subsidy payments are inadequate or delayed, the only way companies can continue supplying nutrients to farmers at below production/import cost is by contracting fresh debt. In the past, the Centre used to pay subsidy by issuing bonds in lieu of cash to FCI and fertiliser companies. The situation is worse today, where these entities, far from receiving interest on bonds, are becoming further indebted.
The Budget should have been an opportunity for the Union government to spell out a reform path, wherein all farm subsidies — whether on inputs (fertiliser and credit) or output (open-ended procurement at above-market-rate minimum support prices) — are collapsed into an expanded PM-Kisan direct income support programme. The same goes for food, where the emphasis should be more on nutritional security. That goal is much better achieved through a mix of targeted cash transfers, mid-day meal schemes in government schools and the government maintaining a minimum stock of cereals, pulses, edible oils, milk powder and other essential food items enabling effective market intervention. By persisting with a system that promotes inefficiency of resource use (fertiliser), inequity (rewarding only farmers of two crops) and lack of dietary diversification, it reinforces status quo of the worst kind. Money spent on food and fertiliser subsidy can be redirected to serve the “gaon, gareeb aur kisan” much better than is happening now.
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