Subsidy estimate for FY23 kept lower, but government open to scaling up

The Union budget has kept the overall estimate for spending on major subsidies on fertilizer, food, and petroleum in FY23 lower than what has been actually spent in the current fiscal according to the revised estimates . However, that does not prevent the government from raising the subsidy bill through supplementary demands for grants as has been the practice in the past, explained a government official.

In the case of overall fertilizer subsidy allocation, there is a 25% reduction in the budget estimate for FY23 at ₹1 trillion, while food subsidy for FY23 is 28% lower at ₹2 trillion. Petroleum subsidy is 11% lower next fiscal at ₹5,813 crore.

However, subsidy spending allocation does not mean beneficiaries could be impacted as the subsidy outgo is a function of both the price of the commodity and the quantum of the item consumed. Given the volatility in global commodity prices, especially of potash for which India is heavily dependent on imports, a softening of the price in world markets could mean a lower subsidy bill. In the current fiscal, the government had scaled up subsidy to cushion farmers from the spike in the global price of the commodity.

In the case of both food and fertilizer, the government had in FY22 scaled up the subsidy outgo from the allocations originally made at the beginning of the year.

Subsidy on imported urea and on indigenous phosphorous and potash fertilizers are allocated a lower subsidy outgo in FY23 budget estimates compared to the revised estimates for the current fiscal.

The government had spent ₹2.8 trillion on food subsidy in the current fiscal according to revised estimates. The outgo in this regard was ₹5.4 trillion in FY21. As part of the humanitarian packaged rolled out during the pandemic, the government had offered free foodgrain to the needy under the food security programme.

The government was in “no way cutting down important subsidies”, finance minister Nirmala Sitharaman said at a briefing. Subsidies and welfare schemes continue, the minister explained.

The direct benefit transfer of LPG subsidy is kept at ₹4,000 crore for FY23. This could prove to be insufficient in case international prices of crude oil continue to rise and there is resistance from consumers to further price hikes, said Prashant Vasisht, vice president and co-head, corporate ratings at ICRA Ltd. Reduced requirement of food subsidy also indicates relatively better socio-economic conditions with the pandemic subsiding and its third wave being less severe than the earlier one.