The federal subsidies that make up one-tenth of the overall government expenditure have ballooned due to increased international gas prices and a free food scheme; therefore, the country has budgeted for a higher outlay.
On Friday, people who are familiar with the matter stated that the Center’s subsidies on fertilizers and food are set to hit a record level of nearly 5.6 lakh crore in the fiscal year ending March 2023, which would be an overshoot of the earlier estimate by a third. However, it is likely that an expected uptick in government revenues will ensure that the situation remains well within the fiscal comfort zone.
Federal subsidies, which comprise a tenth of the overall government expenditure, have ballooned due to increased international gas prices and a free food scheme. The country has budgeted for a more considerable outlay. For the third year, the government is forecast to incur subsidizing costs above its goal.
This is projected to be compensated by higher-than-anticipated tax receipts. In November, former revenue secretary Tarun Bajaj said that tax collections in 2022–23 might be almost 4 lakh crore higher than the budget estimate.
Costs associated with fertilizer subsidies are predicted to exceed 2.5 lakh crore, which is far more than the 1.05 lakh crore allotted in the budget. The Indian government imports various crop nutrients and sells them at a reduced price to its many millions of farmers.
The rising cost of liquefied natural gas, used in producing fertilizers like urea, significantly contributes to this year’s record subsidy. The price paid by farmers for a 45-kilogram bag of urea is $242, while the production cost is $2,650. As a subsidy, the government covers the difference for fertilizer companies.
In response to rising international costs, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, approved an additional 51,875 crore subsidy for phosphatic and potassic (P&K) fertilizers on November 2.
With this change, the Center’s nutrient-based subsidy (NBS) scheme, which regulates the cost of agricultural nutrients, will be more affordable. About half of India’s annual food output comes from winter-sown crops, such as wheat, lentils, legumes, millets, vegetables, and oilseeds like mustard, grown by India’s farmers.
As part of its NBS policy, the government provides a yearly, per-kilogram subsidy for nitrate (N), phosphate (P), potassium (K), and sulfate (S)-based crop nutrients (S).
The government’s expected full-year (2022-23) fertilizer subsidy outlay of 2.5 lakh crore includes the latest installment for the winter-sown season (October-March). Additionally, the subsidy for P&K fertilizers is significantly greater than the Rs 28,655 crore allocated in the previous season, mainly due to increased international costs.
The Fertilizer Association of India reports that in 2021–22, yearly consumption of fertilizers in India increased to 32.54 million metric tons from 29.37 million metric tons in the previous fiscal year, a growth of 10.8 percent.
Due mainly to the Pradhan Mantri Garib Kalyan Anna Yojana, a free foodgrain scheme introduced after the outbreak of the COVID-19 pandemic, the government’s food subsidy cost is expected to exceed Rs 3 lakh crore.
According to a Cabinet note, the ‘s entire cost from its inception in 2014 through December 2022 is estimated to be 3.9be Rs.lakh billion. According to a government official, the total for October through December 2022 is Rs 4,762 crore.
