Headroom available for more rationalisation of subsidies: Survey

Hinting at a further cut in food subsidy, the Economic Survey for 2019-20 said that despite moderation, there was still headroom for further rationalisation of subsidies, especially the food subsidy.

It also emphasised that to ensure sustainability of food security operations in the country, the issue of a burgeoning food subsidy bill needs to be addressed.

The survey was tabled in Parliament by Finance Minister Nirmala Sitharaman on the opening day of the Budget Session of Parliament.

As per the pre-Budget survey, budgetary expenditure on subsidies has seen significant moderation through improved targeting.

It said that there has been considerable restructuring and reclassification of the central sector and centrally-sponsored schemes in recent years.

Stressing on food subsidies, the survey pointed out that the expenditure on major subsidies, a significant component of non-committed revenue expenditure, was pegged at 1.4 per cent of the GDP in the 2019-20 budget estimate.

"The budgetary expenditure on major subsidies has shown a declining trend over the past years. In the 2019-20 Budget estimate, major subsidies are estimated at Rs 3.02 lakh crore owing to requirements for food, fertiliser and petroleum subsidies," it said.

The survey said that food subsidy comprises subsidy provided to the Food Corporation of India (FCI) for procurement and distribution of wheat and rice under the National Food Security Act (NFSA) and other welfare schemes and for maintaining the strategic reserve of foodgrains as well as subsidy provided to the States for undertaking decentralised procurement.

It said that the acquisition and distribution costs of foodgrains for the central pool together constitute the economic cost. The difference between the per quintal economic cost and the per quintal Central Issue Price (CIP) gives the quantum of food subsidy.

While the economic cost has increased, the CIP for NFSA beneficiaries has not been revised from Rs 200/quintal in the case of wheat and Rs 300/quintal in the case of rice, it said.

The survey pointed out that these rates were fixed under the Act initially for three years from the date of commencement of the Act on July 13, 2013. Thereafter, these were to be fixed by the Central government from time to time, while not exceeding the minimum support price.

"However, it has not been revised since 2013. This has resulted in the widening of gap between the economic cost and CIP, with the food subsidy incurred by the government rising substantially over the years," it said.

Citing reasons for the widening of the food subsidy scope, the latest economic survey said that the NFSA provided a wider coverage than the erstwhile TPDS on one hand, but also made Antyodaya Anna Yojana (AAY) CIPs uniformly applicable to all NFSA beneficiaries.

"Further, APL/BPL categorisations were done away with under the NFSA. Coverage under the Act was also delinked from the poverty estimates as it was substantially high, so as to ensure that all vulnerable and needy sections of society get benefited," it said.

The survey said that while retaining the AAY category, the National Food Security Act covers the remaining beneficiaries as priority households.

"Moreover, build-up of foodgrain stocks much higher than their norms, increase in economic cost and real MSP and decline in sale realisation due to decline in average Central Issue Price for APL households have contributed to the rise in food subsidy," it pointed out.

"While the interests of the vulnerable sections of the population need to be safeguarded, the economic rationale of increasing the Central Issue Prices under the NFSA also cannot be undermined. For the sustainability of food security operations, the issue of burgeoning food subsidy bill needs to be addressed," the survey added.

( With inputs from IANS )