Budget 2020: The subsidy challenge before Prime Minister Narendra Modi

Finance minister allocated Rs 1.84 lakh crore for food subsidy which was an all-time high. However, experts believe that this amount may go up substantially in this year’s budget due to a massive increase in the minimum support prices (MSP) announced by Prime Minister Narendra Modi ahead of the Lok Sabha elections.

New Delhi: Prime Minister Narendra Modi’s government promised to spend over Rs 3 lakh crore in FY 2019-20 in providing relief to the needy sections of the society.

This assistance, which is given to poor people and farmers in form of food, fuel and fertiliser subsidies, constitutes more than 10% of the total budgeted expenditure of the central government which has been pegged at around Rs 28 lakh crore in this fiscal.

Last year, finance minister Nirmala Sitharaman allocated Rs 1.84 lakh crore for food subsidy which was an all-time high. However, experts believe that this amount may go up substantially in this year’s budget due to a massive increase in the minimum support prices (MSP) announced by Prime Minister Narendra Modi ahead of the Lok Sabha elections.

“The cost of procurement has gone up. The government has increased the minimum support price substantially.

It is bound to have an impact on the food subsidy bill in this year’s budget,” said Ashok Vishandass, former chairman of the Commission for Agricultural Costs and Prices (CACP).

In 2017-18, the total subsidy bill of the Union government on three principal subsidy heads food, fuel, and fertiliser - was just Rs 1.91 lakh crore, which went up to Rs 2.66 lakh crore in 2018-19(RE), a sharp jump of nearly 40%.

Though there was a marginal increase in fuel and fertiliser subsidies, the biggest increase was registered in the food subsidy bill which went up from Rs 1 lakh crore to Rs 1.71 lakh crore within a year.

Agriculture sector experts attribute this massive rise of 70% in the food subsidy bill in just one year to several factors such as the increasing cost of procurement, massive storage requirements for providing subsidized food grains to a vast majority of Indian poor.

In his bid to woo back his support base among the farming community ahead of crucial Lok Sabha elections in April-May 2019, Prime Minister Modi in June 2018 announced that the minimum support price (MSP) of staple food grains will be set at 150% of the cost of production.

And after winning the election last year, the Union government once again hiked the MSP of staple food grains sown in Rabi seasons (winter crops) such as wheat, barley, gram, and pulses.

In October 2019, the MSP of wheat was hiked from Rs 1,840 per quintal to Rs 1,925 per quintal.

Agriculture sector experts believe that the government policy of increasing the MSP of major food grains while maintaining the price of subsidized food grains distributed through fair price shops will put more pressure on the food subsidy bill this year.

Union government’s subsidy bill has often attracted a shrill debate as any change in the allocation directly impacts a vast majority of the country’s poor people. Experts like Ashok Vishandass advise the government to expand the scope of national rural employment guarantee programme MNREGA.

He says that the government should give more emphasis to employment generation to tackle poverty rather than giving doles to the country’s poor.

Last year, finance minister Nirmala Sitharaman allocated Rs 59,000 crore for MNREGA programme that guarantees to provide a minimum 100 days of work in a financial year to a rural household whose members volunteer for unskilled manual work.

In comparison with the rural employment guarantee programme, she allocated 3 times more money (Rs 1.84 lakh crore) for providing subsidized ration to feed a vast majority of the country’s poor.

Economists say that there is no easy way out of the situation as political compulsions will not allow any government to cut the food subsidy bill.
Ashok Vishandass said: "Good economics is not always good politics."

(Article by Senior Journalist Krishnanand Tripathi)