Despite low crude prices and decontrol of key fuels that have reined in petroleum subsidy, the Centre’s subsidy bill may see a increase of Rs 10,000 crore from the budgeted level this fiscal. Though much lower than the upward revisions of the subsidy estimates in the last few years except FY15, the expenditure on subsidy this year is set to overshoot the budgeted amount as some arrears have been paid.
Three major subsidies — food, fertiliser and fuel — account for 96% of the total subsidy. For FY16, the three subsidies are estimated to be Rs 2.27 lakh crore, down from Rs 2.54 lakh crore in FY15. The subsidy on petroleum products was estimated to halve this year to Rs 30,000 crore and, according to sources, this assumption has proved to be correct; in fact, there could be savings of some Rs 3,000 crore on actual fuel subsidies for the current year.
Yet the oil subsidy bill on the budget would be higher by Rs 2,000-3,000 crore due to Rs 5,000 crore arrears paid.
The fertiliser subsidy would be Rs 6,000-7,000 crore higher than the budgeted Rs 73,000 crore owing, again, to arrears paid. As for food subsidy, even as the amounts that are due to be paid to Food Corporation of India reached a staggering R60,000 crore, the Centre may not take any big additional hit this year. While the food ministry is seeking additional subsidies, the government may not oblige due to its poor finances, sources said. In total, the additional allocations needed won’t exceed Rs 10,000 crore this year.
The FY16 budget estimate (BE) for subsidies, including interest sops and other subsidies, is Rs 2.44 lakh crore, 8.5% lower than Rs 2.66 lakh crore in FY15.
As against an internal estimate of Rs 22,000 crore, the Centre could spend Rs 7,000 crore less on LPG subsidy while it could spend Rs 3,000-4,000 crore more than the internal estimate of Rs 8,000 crore on kerosene subsidy, which, sources said, was “under budgeted”.
As for fertiliser subsidy, the chemicals and fertilisers ministry has sought a special banking arrangement of about Rs 25,000 crore for fertiliser manufacturers and importers hit by the time lag in subsidy payments. But the finance ministry is not in favour of giving this facility due to fiscal constraints, as the short-term loan has to be repaid by the Centre next year. According to industry sources, fertiliser subsidy arrears are now about Rs 30,000 crore.
Similarly, the finance ministry is disinclined to release a good part of the unpaid subsidy of Rs 58,000 crore or let Life Insurance Corporation raise Rs 40,000 crore to support the Food Corporation of India even though the corporation will have exhausted the funds for buying foodgrains from farmers by December-end. The ministry, as reported by FE recently, has rejected a food ministry proposal that the government be guarantor to the 10-year bonds proposed to be issued by LIC to bridge FCI’s resource gap.
To keep subsidies under check, the government plans to implement direct benefit transfer (DBT) scheme for all government welfare programmes. Some analysts say it could save Rs 60,000 crore a year if DBT is fully implemented in the three major subsidies. Enthused by the implementation of DBT in LPG, which saved the exchequer Rs 15,000 crore in FY15 by plugging leakages, the government will roll out DBT in kerosene and food from next year.
