Explained | Subsidy Challenge: How To Tackle Fourth Largest Expenditure In Union budget

For the three-year period, from FY 2022-23 to FY 2024-25 (current financial year), the Centre’s cumulative subsidy bill on three items - food, fuel and fertilizers - alone accounts for a sum of Rs 13.26 lakh crores. Writes Krishnanand.

Subsidies or financial assistance given to the needy and poor sections of the societies account for the fourth-largest expenditure of the Union government after interest payment, transport, and defence expenditure.

For example, if the Union government is going to spend one rupee in the current financial year then interest payment alone will account for 20 paisa, defence 8 paisa while subsidies will account for 6 paisa.

For the three-year period, from FY 2022-23 to FY 2024-25 (current financial year), the Centre’s cumulative subsidy bill on three items - food, fuel and fertilizers - alone accounts for a sum of Rs 13.26 lakh crores.

It is a challenge for any government to set aside nearly Rs 4 lakh crores to Rs 5 lakh crores in every budget as financial assistance for needy sections of society.

As per the budget documents, the Union government spent Rs 5.31 lakh crores on providing subsidies on three heads in 2022-23, while the revised estimate for the last financial year has been estimated at Rs 4.13 lakh crore, and the budget estimates for the current financial year has been estimated at over Rs 3.81 lakh crore, which shows a declining trend.

Subsidy bill for providing free food grains to over 810 million people under the Pradhan Mantri Garib Kalya Anna Yojana (PMGKAY) consumes the biggest chunk of overall subsidy bill of these three heads.

For example, the Centre’s food subsidy bill alone was Rs 2.73 lakh crores in FY 2022-23, and as per the revised estimate, it has been estimated at Rs 2.12 lakh crore for the last financial year and the allocation for the current financial year, as per the budget estimate, is over Rs 2.05 lakh crores.

As per the official data, the Centre spent Rs 3.42 lakh crore during the first 28 months which covered the first to fourth phase of the scheme which was started in the wake of outbreak of Covid-19 global pandemic.

After the food subsidy, comes the subsidy on fertilizers which accounts for 43-46 percent of the total subsidy bill. The Centre’s fertilizer subsidy bill was in excess of Rs 2.51 lakh crores in FY 2022-23, and for the last financial year, it has been estimated at Rs 1.99 lakh crores as per the revised estimates and the budget allocation for the current financial year is Rs 1.64 lakh crores.

However, the subsidy bill for petroleum products is miniscule in comparison with the food and fertilizer subsidy bills. Over the years, it has become negligible due to the government’s decision of charging the market price for the two biggest commodities – petrol and diesel.

The Centre’s subsidy bill on petroleum products was over Rs 6,800 crores in FY 2022-23, Rs 12,240 crores in the FY 2023-24 as per the revised estimates and a sum of Rs 11,925 crores have been allocated for the current financial year.

Though there is a declining trend in the subsidy bill in the three year period but the ruling party’s electoral setbacks in recently concluded Lok Sabha elections in Hindi heartland and agrarian states such as Punjab and Haryana may change the government’s thinking of gradually bringing down the subsidy bill.

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