Interim Budget 2024: Food, fertilizer, fuel subsidy bill to fall to 5-year low

Interim Budget 2024: Food, fertilizer, fuel subsidy bill to fall to 5-year low

Subject: Economy

Sec: Fiscal Policy

Context:

• The Centre’s subsidy bill on the ‘3 Fs’ ie food, fertilizer and fuel , is slated to fall to a five-year-low of Rs 3,81,175 crore in 2024-25, as per the Interim Budget

More on news:

• There are two main drivers for the decline.
• The first is the discontinuation of the free, additional 5-kg monthly grain allocation to the 80 crore-plus public distribution system (PDS) beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana.
• The second driver for the Centre’s lower subsidy outgo is fertilizer. 

Food subsidies:

• The food subsidy is being projected at Rs 2,05,250 crore for 2024-25.
• The extra rice or wheat is over and above the regular 5 kg/person/month PDS quota under the National Food Security Act which was given during the post-Covid period from April 2020 to December 2022.
• That ended effective from the last calendar year.
• This is down from the revised estimate (RE) of Rs 2,13,332 crore for this fiscal, Rs 2,72,802 crore for 2022-23 and Rs 2,88,969 crore for 2021-22.
•  Annual grain offtake through the PDS and other schemes falling to 64-65 million tonnes (mt) in 2023-24 (as against 92.9 mt in 2020-21, 105.6 mt in 2021-22 and 92.7 mt in 2022-23).
• The government’s procurement as well as stocks in godowns also declining (translating into reduced carrying cost of buffer beyond operational requirements)

Fertilizer subsidy:

• The fertilizer subsidy fell to Rs 188,894 crore in 2023-24 and is budgeted even lower at Rs 1,64,000 crore for the coming fiscal.
• The second driver for the Centre’s lower subsidy outgo is fertilizer.
• This bill soared to a record Rs 2,51,339 crore in 2022-23, following Russia’s invasion of Ukraine in February 2022 that led to skyrocketing international prices of fertilizers and raw materials.

Fuel subsidies:

• It touched Rs 96,880 crore in 2012-13 and Rs 85,378 crore in 2013-14.
• The petroleum subsidy fell subsequently with benign global crude prices and the present-day government limiting it only to sale of LPG cylinders and providing connections to poor/low-income households.
• Retail prices of diesel and petrol have not been revised since they were last cut on May 22, 2022.
• This has pushed up petroleum subsidy to Rs 12,000 crore levels in the current as well as ensuing fiscal.