Source: The post is based on the article “The cost of India’s subsidy spike” published in the Indian Express on 15th November 2022.
Syllabus: GS – 3 – Issues related to direct and indirect farm subsidies.
Relevance: About the government’s subsidy bill.
News: The government has received the Lok Sabha’s approval to spend an additional Rs 2.14 lakh crore towards subsidies on the 3Fs — food, fertiliser and fuel — in the current fiscal.
The recent increase will take the total expenditure in 2022-23 to Rs. 5.32 lakh crore. This would be the second-highest outgo on major subsidies after the Rs 7 lakh crore in 2020-21.
Why does the government’s subsidy bill increase recently?
External factors: The last three years have been extraordinary in terms of external shocks. Such as the pandemic (2020-21 and 2021-22), climate calamities (2021-22) and the Russia-Ukraine war (2022-23) and each seamlessly transitioning to the other. This led to increase in the government’s subsidy bill.
Internal factors: a) India saw millions die during the 1943 Bengal Famine or the great drought of 1899-1900. So, the government wants to ensure poor and vulnerable got access to free/near-free grain without any hurdles, b) The government by increasing subsidies has ensured no significant shortage of urea and di-ammonium phosphate (DAP) for Indian farmers, despite the disruptions to the global fertiliser trade following the war.
| Read more: Accounting for subsidies: Let’s build on the ‘revdi’ debate |
What are the challenges in the higher government’s subsidy bill?
a) The market distortions created by increasing subsidies might be incurred excessively even in normal years, b) Unlike fossil fuels which are net taxed than subsidised, fertilizer and foods are not, c) The retail price of urea and DAP has been raised just once. This forced fertiliser companies to heavily under-price them, and d) The issue prices of wheat and rice through the regular public distribution system were frozen at Rs 2-3/kg since July 2013.
| Read more: The Agreement on Fisheries Subsidies (Agreement) at the WTO Ministerial meeting |
High subsidy bills entail costs, create market distortion. Hence, the government needs to revise these policies and introduce direct benefit transfers to reduce the government’s subsidy bill.
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