The shift from giving food at Rs 2/3/1 per kg to “free” would lead to an additional outgo of about Rs 13,000 crore In the Union Budget for 2023–24, Finance Minister Nirmala Sitharaman has stuck to the fiscal deficit (FD) target of 6.4 per cent of GDP in the revised estimate for 2022–23. She has kept the target for 2023–24 at 5.9 per cent. However, payments on major subsidies such as fertilisers and food, which account for a significant share of the Union government’s total expenditure, could play spoiler. Fertiliser subsidy—payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution of fertilisers over the low maximum retail price (MRP) fixed by the government—was budgeted...
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Budget revolutionises personal income tax
The new personal income tax regime will spur economic growth as it leaves more cash in the hands for people In Budget 2023-24, Finance Minister Nirmala Sitharaman has made some radical changes in the structure of personal income tax (PIT). To get a sense, let us first take a look at what she did in her Budget 2020-21. Then, Sitharaman had announced the Modi Government’s intention to move towards a regime that was simple, free from a plethora of exemptions and deductions, and reduced the tax liability of assesses, thereby leaving higher disposable income in their hands. From the perspective of the economy, the idea was to give a boost to aggregate demand and drive growth. Under the old regime...
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Off-budget liabilities return in Budget ’23
Unless PM Modi cracks the whip on reforms in food and fertiliser subsidy, such liabilities will haunt economy In Budget 2020-21, Finance Minister Nirmala Sitharaman candidly acknowledged the existence of the so-called off-budget liabilities and extra-budgetary resources (EBRs) and mentioned these in an annexure. EBRs are those financial liabilities or borrowings that are raised by public sector undertakings (PSUs) and other agencies of the government to fund latter’s schemes for which repayment of entire principal and interest is done from its Budget. If all obligations pertaining to the borrowings are met by the Union government then why does it not take these on its own balance sheet (BS) instead of riding piggyback on its agencies/PSUs? The reason is by not...
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Cap natural gas prices to control rising fertiliser subsidy
The government should continue with the extant formula for the pricing of natural gas as per November 2014 guidelines The pricing of domestic gas presents a mix of administrative control and market forces. A major reason why fertiliser subsidy zoomed to Rs 2.25 lakh crore in the revised estimate (RE) of 2022-23 against the budget estimate (BE) of Rs 1.05 lakh crore was the sharp increase in the price of natural gas, which accounts for over 80 percent of the production cost of urea. Almost all manufacturing of urea in India is based on natural gas. India consumes 59.5 billion cubic metres (bcm) of natural gas annually. Of this, nearly 54 percent, or 32.13 bcm, is produced domestically, and...
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Delink disinvestment from Budget exercise
The Union Government must set up a holding company where all of its shares in the Central Public Sector Undertakings (CPSUs) are placed In Budget for 2022-23, Finance Minister Nirmala Sitharaman had set a target of Rs 65,000 crore for proceeds of sale of Union government shareholding in central public sector undertakings (CPSUs). Against this, the revised estimate (RE) is placed at just about Rs 31,000 crore which works out to 47 per cent of the target. For 2023-24, Sitharaman has set a target of Rs 51,000 crore. During the last eight years since 2015-16 when this government started disinvestment with particular focus on ‘strategic’ sale (a sophisticated nomenclature for share sale that reduces its holding in the CPSU to...
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Budget 2023: Fertiliser, food subsidies can upset fiscal math
Higher cost of production due to the elevated cost of gas could increase the subsidy outgo on fertilisers during 2023-24 as would the extension of the free foodgrain scheme beyond December 2023 Fertiliser subsidy outgo during 2022-23 is estimated to be around Rs 2.25 lakh crore against a budget estimate (BE) of Rs 1.05 lakh crore. In the Budget for 2023-24, finance minister Nirmala Sitharaman informed that the government was set to achieve the fiscal deficit target of 6.4 percent of the gross domestic product (GDP) for the financial year 2022-23. This was despite substantial slippages in the expenditure on fertilisers and food subsidies. Fertiliser subsidy outgo during 2022-23 is estimated to be around Rs 2.25 lakh crore against a budget...
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Budget 2023 needs to play the hard ball on fertiliser subsidy
In a business-as-usual scenario, there won’t be any respite from a high fertiliser subsidy. Things could change if the Modi government plays the hard ball in Budget 2023 by going for measures such as urea decontrol and direct benefit transfer (DBT) or a significant increase in maximum retail price Fertiliser subsidy is payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution. Propelled by the need to return to a fiscal consolidation path, the Union government is keen to rein in major subsidies. It wants to slash fertiliser subsidies from the likely actual of around Rs 2.50 lakh crore during the current fiscal year (FY) to Rs 1.40-1.50 lakh crore during FY2024. Going...
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DBT is the way forward for balanced fertiliser use
The flawed subsidy and pricing policy followed by governments for years has led to excessive use of urea and a deterioration in soil health The subsidy is given directly to the farmers even as the manufacturers charge consumers a price that fully covers the cost of supply. For over a decade, Indian agriculture has been grappling with an imbalance in fertiliser use involving excessive use of nitrogen or ‘N’ vis-à-vis phosphate or ‘P’ and potash or ‘K’ even as the present NPK use ratio at 6.7:2.4:1 (against the desired 4:2:1) is tilted in favour of ‘N’. This, in turn, has led to a decline in crop yield, deterioration in soil health and adverse impact on the environment. The imbalance has...
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Is free food welfare or a freebie?
During FY 2021–22, the economy rebounded, with the GDP registering a growth of 8.9% On January 1, 2023, the Union Government terminated the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). Accordingly, in the Union budget 2023-24, it has reduced allocation for food subsidy from Rs 287,000 crore during 2022-23 (RE) to Rs 197,000 crore. Beginning in April 2020, PMGKAY provided 5 kg of rice or wheat per person per month for “free” via the Public Distribution System (PDS), as well as 1 kg of pulses per family per month to around 820 million families. Run for three months initially, the scheme got six extensions till December 31, 2022. In the unprecedented situation triggered by the Covid-19 pandemic of large-scale job and income...
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Budget 2023 targets inclusive growth
The Finance Minister has given a push to growth through a judicious blend of encouraging investment and consumption Guided by the overriding objective of laying the foundation of putting India on a rapid and sustainable growth trajectory, for three years in a row, the Narendra Modi government has presented an investment-led Budget. Most of the budgetary allocations are going into building infrastructure, while the government has taken measures to promote investment by the private sector. The Budget for 2023-24 continues with this overarching strategy. In her maiden Budget for 2019-20, Finance Minister Nirmala Sitharaman had laid a roadmap for catapulting the Indian economy to $5 trillion by 2024-25. In sync with this target, she had projected an investment requirement of...
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