Marginal hike in food subsidy bill – The Hindu

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The government’s food, fertiliser and fuel subsidy bill has been pegged marginally higher by 0.24% at ₹2,27,793.89 crore for the 2020-21, according to the Budget document.

The hike comes despite the Economic Survey stating that food subsidies end up creating distortions in the functioning of the free market.

The government has allocated about ₹2,27,255 crore for the food, fertiliser and fuel subsidy in the current fiscal in the revised estimate compared to ₹3,02,094 in the budget estimates. The government spent ₹1,96,769 crore on the food, fertiliser and fuel subsidies in 2018-19.

Of the total subsidy bill, the maximum allocation has been made for food (₹1,15,569.68 crore), followed by fertiliser (₹71,309 crore) with fuel getting ₹40,915.21 crore.

The Economic Survey had called for rationalisation of government intervention in the food grain market. It said the government’s role as largest procurer and hoarder of rice and wheat, has led to burgeoning food subsidy burden and inefficiencies in the markets.

“Subsidy as a concept is not a good idea except for few priority sectors. Subsidy is often used for populist purposes and its more political in nature than economic. Urea subsidy is supporting the farm sector, so it is justified. But why do large scale farmers, who don’t pay any income tax, need a subsidy? Providing subsidy through direct benefit transfer scheme below certain threshold should help,” Sachin Mohan, Partner & Head -Indirect Tax at KPMG (India), told The Hindu.

For 2020-21 fiscal, the allocation for subsidised foodgrain through the public distribution system (PDS) and other welfare schemes has been increased 6.33% to ₹1,15,569.68 crore; the allocation for subsidised fuel, especially cooking gas and kerosene, has also been increased by 6% to ₹40,915.21 crore.

However, the allocation for subsidised fertilisers has fallen sharply by 11% to ₹71,309 crore from ₹79,997.85 crore allocated in the revised estimate.

Talking about fertiliser subsidy, Kunal Sood, Partner-Food & Agri sector at Grant Thornton told The Hindu, “In my view it shall prove to be strategic in the long run. The subsidy led to increased use of chemical fertilizers (urea overuse) while related increase in productivity is fast declining. Or in other words, costs exceed benefits. It also led to deterioration of soil quality (nutrient deficiency). The FM has proposed to reverse it by reducing subsidies on chemical fertilizer and encouraging organic farming. It is a long term solution which will benefit farmers and food security. Will it encourage industry to focus on designing need based products and educating farmers on efficient and balanced use of fertilizers based on soil health? A farmer is expected to use less fertiliser but more targeted to local conditions. Overall win-win,” said Mr. Sood.

Mr. Dharmesh Kant, Head- Retail Research, IndiaNivesh is negative on agri-chemical manufacturers and fertiliser manufacture after the Finance Minister announced that balanced use of chemical inputs will bring about change in the prevailing regime .

For the current year, ₹38,568.86 crore has been allocated as fuel subsidy. The allocation for LPG subsidy has been increased to ₹37,256.21 crore for the next fiscal from the revised estimate of ₹34,085.86 crore for the current year. However, the allocation for kerosene subsidy has been reduced to ₹3,659 crore for the next year from the revised estimate of ₹4,483 crore for the current year.

“The LPG subsidy is justified as its going to weaker sector of the society. The LPG connections under Pradhan Mantri Ujjwala Yojana (PMUY) is going up,” said Mr. Mohan.

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