Planning Commission?s mid-term appraisal has advocated raising food, fertiliser and fuel prices to contain subsidies at their budgeted levels. A bold suggestion indeed given the huge political ramifications such a step will entail. The country?s budgeted subsidies for the 2010-11 financial year have been estimated to be over Rs 1 lakh crore and this math could go awfully wrong if fuel prices are not hiked to keep pace with international crude oil rates.
A little step has been taken in the fertiliser sector after it was brought under the new nutrient-based regime. But, oil subsidy and the central issue price (CIP) of foodgrains distributed through the public distribution system still remain unattended. Take food subsidies. The government buys grain from farmers at MSP, which has been consistently hiked over the last few years. But CIP, the price at which it sells to targeted consumers, has not been revised since 2002.
As a result of which, food subsidies, which are almost half of the government?s total subsidy bill, have swelled from Rs 17,499 crore in 2001-02 to the budget estimate of almost Rs 55,578 crore in 2010-11. The proposed move by the government to increase the central issue price of foodgrains sold to above poverty line families (some reports said that proposed hike is to the tune of over 75%) is not only a welcome step to bring down the subsidy bill, but is also needed to check diversion of grains meant for PDS to the open market.
At the current CIP level, government gives a subsidy of 86.7% for wheat sold under antodaya anna yoyana (AAY) through the public distribution system, a subsidy of 72.4% for wheat distributed to below poverty line families and of 59.5% for that distributed to above poverty line families.
Similarly, for rice, government?s subsidy for distribution under AAY as of 2009-10 is around 84.2%, for BPL families 70.2% and that for APL families the subsidy for rice distribution is almost 56.2%. So, when foodgrains are sold through the PDS at rates less than the market price, there is more incentive to sell those in the market rather than distributing to the beneficiary. This should be reason enough to trim subsidies.
sanjeeb.mukherjee@expressindia.com