The government’s food and fertiliser subsidy expenses in the current fiscal are estimated at Rs 5.21 trillion, an all-time high, as per the official sources. While food subsidy expenses would be around Rs 2.76 trillion in FY23, the subsidies incurred because of supplying highly subsidised soil nutrients to farmers in the current year are estimated at Rs 2.45 trillion.
Sources told FE that due to a softening of global fertilsers prices in the recent months and discontinuation of Pradhan Mantri Garib Kalyana Anna Yojana (PMGKAY) or free ration scheme, the subsidies outgo next fiscal could decline by around 20% on year to Rs 4.1 trillion.
The previous annual record of actual expenses on these two major explicit subsidies was Rs 4.48 trillion incurred in 2021-22; the food subsidy bill alone was budgeted at Rs 5.41 trillion in 2020-21, but that Rs 3.4 trillion of it was on a account of repayment of off-budget NSSF loans pertaining to previous years.
The government’s food subsidy expenses in the current fiscal is now estimated 34% higher than the outlay made at the beginning of the year (budget estimate). This includes the expenditure of Rs 1.03 trillion towards running PMGKAY during April-December, 2022.
Out of the total food subsidy, the Food Corporation of India (FCI) is expected to incur expenses of Rs 1.95 trillion in the current fiscal while the rest of the expenses would be by states those who follow decenctralised procurement system.
The estimated fertiliser subsidies for the current year is estimated at a record Rs 2.45 trillion mainly because of a spike in global prices of soil nutrients in the wake of the Russia-Ukraine conflict.
It would be the third year in a row that the annual Budget spending on fertiliser would be above Rs 1 trillion mark, against a lower range of Rs 70,000- 80,000 crore in the past few years.
The country imports about half of its requirement of di-ammonium phosphate (DAP) and 25% of urea consumption. The domestic muriate of potash (MoP) demand is met solely through imports (from Belarus, Canada and Jordan, etc). The fertilisers are provided to farmers at highly subsidised rates.
Fertiliser ministry sources said that prices of soil nutrients have declined in the recent months. Recently Arun Singhal, secretary, department of fertilisers had stated that there is a likelihood of softening of global prices of fertilisers further. Stating that future volatility in global prices could not be predicted, he said that future course of Russia and Ukraine conflict would have an impact on the global price movements of soil nutrients.
Rating agency ICRA has pegged fertiliser subsidy at Rs 2 trillion in next financial year.
“The availability of fertiliser in international markets have improved, and the prices have also started to correct, which is a good sign for the domestic fertiliser industry as India imports a sizeable portion of key raw materials as well as finished fertilisers (almost 25-28% of finished fertilisers are imported),” Sabyasachi Majumdar, Group Head & Senior Vice President, Corporate Ratings, ICRA Limited, said.
Last month, the cabinet decided to provide around 48 million tonnes of rice and wheat annually under National Food Security Act free-of-cost to the 813 million beneficiaries during 2023 while it decided against extending the PMGKAY or free ration scheme beyond December 31, 2022.
The estimated economic cost of food grains procurement by the FCI, which includes expenses such as Minimum Support Price payment to farmers, procurement, acquisition and distribution costs, etc for rice and wheat are Rs 3,670.04 and Rs 2,588.70 per quintal, respectively, in 2022-23.