Food and Fertilizer subsidy Funding Survey 2020:

Food and Fertilizer subsidy Funding Survey 2020:

 

In the 2020 Economic Survey, released on January 31, the chief economic advisor (CEA), K Subramanian had recommended some reduction in food subsidy by limiting the scheme’s coverage, and increasing the difficulty price of foodgrains. One was, therefore, looking forward to announcement of a serious reform during this regard within the Union allow FY21 presented by minister of finance Nirmala Sitharaman the subsequent day.

 

Far from subsidy allocations coming down, because the Economic Survey had recommended, there’s significant increase not reflected in govt balance sheets.

While the speech was barren of any such announcement, the revised estimate (RE) of food subsidy for FY20 stood at Rs 109,000 crore—a steep decline of 40% from the budget estimate (BE) of Rs 184,000 crore The BE for FY21 stands at Rs 116,000 crore. Meanwhile, the RE for fertiliser subsidy (another major resource guzzler) for FY20 is Rs 70,000 crore against a BE of `80,000 crore. For FY21, the BE is kept at Rs 70,000 crore.

Economic Survey 2020: Fudging food and fertiliser subsidy
By: Uttam Gupta | Published: February 10, 2020 5:27:52 AM
Far from subsidy allocations coming down, because the Economic Survey had recommended, there’s significant increase not reflected in govt balance sheets
Economic Survey 2020, K Subramanian, Union allow FY21, Food Corporation of India, NFSA
Economic Survey 2020: The food subsidy figure mentioned within the budget are reimbursements to FCI, and other state agencies engaged in similar operations on behalf of the Union.
Economic Survey 2020: within the 2020 Economic Survey, released on January 31, the chief economic advisor (CEA), K Subramanian had recommended some reduction in food subsidy by limiting the scheme’s coverage, and increasing the difficulty price of foodgrains. One was, therefore, looking forward to announcement of a serious reform during this regard within the Union allow FY21 presented by minister of finance Nirmala Sitharaman the subsequent day.

While the speech was barren of any such announcement, the revised estimate (RE) of food subsidy for FY20 stood at Rs 109,000 crore—a steep decline of 40% from the budget estimate (BE) of Rs 184,000 crore The BE for FY21 stands at Rs 116,000 crore. Meanwhile, the RE for fertiliser subsidy (another major resource guzzler) for FY20 is Rs 70,000 crore against a BE of `80,000 crore. For FY21, the BE is kept at Rs 70,000 crore.

In the absence of any explicitly stated far-reaching reforms, such drastic reduction in food subsidy could only point towards ‘window dressing,’ in sync with what the mandarins within the finance ministry are wont to , but attempted, this point around, at a way larger scale. At the outset, allow us to check out some basic facts.
Under the National Food Security Act (NFSA), over 800 million beneficiaries/consumers receive foodgrains, primarily wheat, rice, and coarse cereals, at the heavily subsidised price Rs 2, Rs 3, and Rs 1 per kg, respectively; this is often a fraction of the value of procurement, handling and distribution—1/12 within the case of wheat. The task is performed by the Food Corporation of India (FCI) on behalf of the govt , which reimburses the shortfall in realisation from sale vis-à-vis the value as subsidy to the previous . The food subsidy figure mentioned within the budget are reimbursements to FCI, and other state agencies engaged in similar operations on behalf of the Union.

In the past, because of inadequate budgetary allocations (often prompted by the compulsion to stay the fiscal deficit under check), the government’s payments to FCI have fallen short, forcing the latter to
take recourse to capital from banks to sustain operations. In recent years, FCI has even borrowed funds from the National Small Savings Fund (NSSF).

When, FCI started taking loans from NSSF in FY17, the Centre had committed to release the subsidy arrears to enable FCI to pay back the loans in subsequent years. But, that wasn’t to be as subsidy arrears kept mounting, and FCI continued borrowing increasingly from NSSF. At the top of FY19, FCI’s cumulative borrowing from NSSF was Rs200,000 crore. This has continued into the present year also .

Even though the subsidy requirement is Rs219,000 crore—Rs35,000 crore above the Rs184,000 crore BE—the RE may be a much lower Rs109,000 crore. The difference of Rs110,000 crore is formed up by FCI borrowing from NSSF. faraway from subsidy allocations coming down, there’s significant increase, which the FM has camouflaged while presenting the Budget numbers. For FY21, too, the ‘window dressing’ continues, with a BE of Rs116,000 crore—a mere Rs7000 crore above the RE for FY20—even as FCI is projected to borrow about Rs137,000 crore.

The gaps in fertiliser subsidy are not any less glaring. Manufacturers sell fertilisers at a coffee price, unrelated to the high costs of production and distribution; government subsidy compensates them for the shortfall. Here, too, the payments have fallen short. Taking the FY20 BE at Rs80,000 crore, consistent with Fertiliser Association of India (FAI), the year would have ended with unpaid dues of Rs60,000 crore. With the Rs70,000 crore RE, unpaid dues would be even higher at Rs70,000 crore.

With the FY21 BE being Rs70,000 crore, clearing unpaid dues will exhaust almost the whole fund allocation, leaving nothing to buy subsidy liabilities which will arise next year. In her speech, the FM eloquently said that she has mentioned the extra-budgetary resources (EBRs)—loans taken by FCI et al fall during this category—in an annexure. this is often no consolation as long as these are kept
out of the government’s record (BS). In fact, this time, things is far worse, with an increase within the amount going off the BS—in the case of food subsidy, this went up to Rs110,000 crore in FY20, from Rs60,000 crore in FY19).

The expenditure secretary, TV Somanathan, sees nothing wrong with EBRs, saying the borrowings by FCI are against the assets it holds within the sort of food stocks. This argument is flawed since loans are taken against subsidy receivable from the Centre. just in case of wheat, as an example , on every kilo sold under NFSA, the subsidy is Rs23. The loan is given against this amount promised by the Centre. This liability can’t be adjusted against the food stock, which, on sale, can only fetch Rs2.

The secretary further argues that keeping these borrowings off-budget will prevent crowding out, and help the private sector borrow from the market at a lower interest cost. This must
be weighed against erosion within the credibility of fiscal consolidation, which is inevitable when a liability that’s strictly of the Centre is kept off its record . A wrong (read EBRs) can’t be justified just because the honest course of reflecting within the budget would cause problems for personal firms.

The government should recover from its obsession with adhering to fiscal discipline by hook or by crook. It should reflect all off-budget liabilities in its record to project its real health (sans this, mere assertion that the govt is committed to servicing these liabilities, as stated by the FM, doesn’t carry conviction). this could be followed up by long-pending ‘expenditure reforms’ to cause sustainable reduction in spending, particularly on major subsidies.

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