Despite the Narendra Modi government’s relative promptness in meeting the current demands of subsidies, at least Rs 1.25 lakh crore of past dues of major subsidies — four-fifths of that on food alone and the balance mostly on fertilisers — may remain unpaid to the designated agencies at the end of this fiscal. To that extent, the final fiscal numbers to be released in the next Budget will be dented.
Despite the Narendra Modi government’s relative promptness in meeting the current demands of subsidies, at least Rs 1.25 lakh crore of past dues of major subsidies — four-fifths of that on food alone and the balance mostly on fertilisers — may remain unpaid to the designated agencies at the end of this fiscal. To that extent, the final fiscal numbers to be released in the next Budget will be dented. The 2017-18 Budget outlay for the three major explicit subsidies is Rs 2.4 lakh crore, with the share of food, fertiliser and petroleum being in a 6:3:1 ratio. Unless the prices of foodgrains disbursed to the over 80 crore National Food Security Act (NFSA) beneficiaries is significantly raised — a revision is due in July 2018 — the subsidy burden can’t be mitigated, analysts say. There was not conclusive evidence yet of the electronic points of sale machines installed at fair price shops in states reducing the overall intake of NFSA grains, they noted. Of 368 lakh tonnes of grain allocated during April-November this year, 362 lakh tonnes had already been lifted by states, even as a good number of bogus ration cards were weeded out thanks to digitisation.
The Centre had released 93% of this fiscal’s budgeted food subsidy of Rs 1.45 lakh crore by November end and might spend the entire amount budgeted before the year comes to an end. But the funds required by the Food Corporation of India (FCI) to carry out the procurement, storage and price-support operations in the current fiscal year, according to official sources, are seen at Rs 1.18 lakh crore, up from Rs 1.07 lakh crore allocated in the Budget. “Including arrears of `81,303 crore, the subsidy unpaid to FCI could cross Rs 1 lakh crore by the fiscal-end,” said a food ministry official. While the subsidy budgeted this fiscal for state government agencies that carry out “decentralised procurement operations” may be more or less sufficient, the outstanding dues to these entities are also not very high, as payments are usually made in three to six months on submission of utilisation certificates.
Minister for chemicals and fertilisers Ananth Kumar has recently said in Parliament that the subsidy arrears to various fertiliser companies are to the tune of Rs 23,000 crore. Given that there are no major dues to the oil companies and assuming that the release of the subsidies on urea and nutrient-based fertilisers this year will be close to the budgeted level of Rs 70,000 crore, the overall subsidy arrears by March-end could be around Rs 1.25 lakh crore. The food subsidy claimed by state governments (who also take procurement operation under DCP scheme) are disbursed by the Centre between three months and six months depending on their submission of utilisation certificates. The Centre cannot hold their payment as these states support the FCI by undertaking the procurement, the sources said.
Under NFSA, which was launched in July 2013 by the UPA government, the Centre provides rice at Rs 3 a kg, wheat at Rs 2 a kg and coarse cereals Re 1 a kg to the identified beneficiaries. The allocation has been fixed at 5 kg of foodgrains per person per month, except for “very poor” families (under Antyodaya Anna Yojana) who continue to receive 35 kg of grain every month.
FCI, in collaboration with state government agencies, is aiming for a record rice procurement of 37.5 million tonnes (mt) for the 2017-18 (October-September) season. Meanwhile, a Rs 70,000-crore loan the Centre had availed from the National Small Savings Fund (NSSF) under a five-year special arrangement is helping FCI to carry out its operations uninterruptedly (it doesn’t have resort to costly short-term credit any longer). The finance ministry had arranged for NSSF loans in February 2016 because of rising outstanding dues to FCI. The interest on the loan is borne by the exchequer.
FCI procures 55-60 mt of rice and wheat annually. Its costs of procurement, storage and transportation have been rising steadily over the years, driven by the annual rise in the minimum support price and the excess grain stocks held by the corporation. Foodgrain prices under NFSA have remained unchanged since these were first fixed in 2013. The direct benefit transfer scheme for fertilisers, slated to be rolled out from April 2018, could help contain the Centre’s subsidy expenditure.