Clear indication of a move toward the direct cash transfer regime countrywide

With the direct cash transfer (DCT) scheme expected to plug leakages and bring down the subsidy bill, the government on Thursday introduced a major cut in food, fuel and fertilizer subsidies by over 11 per cent at Rs. 2.20 lakh crore in 2013-14 as against the revised estimates of Rs. 2.47 crore this fiscal, a move aimed at containing the fiscal deficit.

The cut in subsidies was a clear indication that the government intended to move to the DCT regime countrywide. Unveiling the budget, Finance Minister P. Chidambaram said the government's subsidy bill on food, petroleum and fertilizers was estimated at Rs. 2,20,971.50 crore for the 2013-14 fiscal as against Rs. 2,47,854 crore in the revised estimates (RE) for this fiscal. The RE for this fiscal are higher by 38 per cent compared to the budget estimate of Rs. 1,79,554 crore.

The oil subsidy, which is given to the state-run oil marketing companies (OMCs) such as Indian Oil Corporation, BPCL and HPCL, for selling diesel, domestic LPG to households and kerosene at a subsidised cost is estimated at a lower Rs. 65,000 crore for the next fiscal against the revised estimate (RE) of Rs. 96,880 crore. The decrease in the subsidy component has been mainly due to less compensation to oil companies for under recoveries.

National food security

The food subsidy given to run the public distribution system is estimated at Rs. 90,000 crore next fiscal from the RE of Rs. 85,000 crore in 2012-13. The increase in food subsidy is mainly towards provision for national food security, according to the budget document. It is to meet the difference between the economic cost of foodgrains and their sales realisation at the Central Issue Price fixed under the PDS and other welfare schemes.

Fertilizer subsidy has also been pegged slightly lower at Rs. 65,971.50 crore in the next fiscal, as against the RE of Rs. 65,974 crore in 2012-13 fiscal. The government would provide Rs. 15,544.44 crore for imported urea, Rs. 21,000 crore for indigenous urea fertilizers and Rs. 29,426.86 crore for the sale of decontrolled fertilizers (DAP, MoP and complexes) at a subsidised rate to farmers.

Sharp criticism

The decision to lower fertilizer subsidy came in for sharp criticism from the industry players. The Fertilizer Association of India (FAI) has said the amount is less compared to the subsidy payments due for this fiscal as well as the payments for the 2013-14 financial year. “This amount will not be enough as there are already huge outstanding bills to the tune of about Rs 30,000 crore pending for 2012-13 and if we add to it the real requirement for the next fiscal, then this amount will not do,” FAI Director General Satish Chander.

Faced with a cash crunch, the Fertilizer Ministry has arranged for a Rs. 5,000-crore bank loan for fertilizer companies which have not been paid full subsidy for about six months. While loans would be taken by the companies, the government would bear most of the interest they would have to pay. Subsidy bills have not been paid for phosphatic and potassic (P&K) fertilizers such as muriate of potash (MoP) and di-ammonium phosphate (DAP) since July and for urea since August.

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