Sitharaman’s Subsidy Challenge in Budget 2022
After the Central Government repealed the 3 Farm Laws in the face of a determined farmers community, the challenge is before the Finance Ministry to deliver on the promises made to quell the agitation.
A huge part of the Central Budget is allocated for the subsidies for farm sector mainly for fertilizers and payments for procuring farm produce on a Minimum Support Price. To put in perspective, last year the government set aside more than 16% of the Union Budget for Food and Fertilizer subsidies, while only 10% was allocated for Defence Budget.
When the Farmer Agitation gained strength in 2020, the government had allocated Rs 1.86 lakh Cr for these two subsidies which was less than Rs 1.88 lakh Cr allocated in 2014-15 in Budget Estimates, the first full Budget of Modi government.
In fact, since coming to power, the new NDA government has been steadily slashing allotments for food and fertilizer subsidies. In 2014-15 it allocated 11.35% of the Union Budget for these subsidies but by 2020-21 the total allocation had been reduced to 6.14%.
The farm agitation was mainly sparked off by these circumstances: the government was reducing subsidies to farmers while their input costs were increasing steadily. The three Farm Bills by opening up the sector to contract farming, competitive market pricing and shutting down the government procurement centers or Mandis, were a red flag to already burdened farming community, especially in Punjab, Haryana and Western UP, which account for nearly two-thirds of the subsidy recipients.
Now comes the harder part. In 2020-21 the government increased its subsidy bill by almost 200% to battle the Pandemic hit economy. The two subsidies were allotted Rs 5.56 lakh Cr in the revised estimates of the budget which was more than 16% of the total Budget allocations. But the next year in 2021-22 it cut down the subsidy bill by 42% to Rs 3.22 lakh Cr for which the revised estimates will be presented in the next Budget on February 1. It was more than 9.25% of the total budget allocations. Interestingly, the post pandemic budget amount remained the same as the government revenue had taken a massive hit.
For this year, the government was working under presumption that its subsidy will reduce as the farm produce will go the open market and the need for food subsidy allocation will decline. Keeping this in mind, the government wrote off all the unpaid debts of the Food Corporation of India which is the procuring agency for food subsidy and ensuring payments to the farmers. Similarly, it also paid of its outstanding amounts to the fertilizer companies.
The dilemma N. Sitharaman faces now is to either cut down the subsidy bill further to balance her books and earn the wrath of the farmers emboldened by a recent victory or face a bigger deficit in the budget at a time when the economy is not out of the woods. Both are tough choices. Especially when in the two large states - Punjab and Uttar Pradesh – Minimum Support Price and Food and Fertilizer subsidies are huge election issues.
When the Farmer Agitation gained strength in 2020, the government had allocated Rs 1.86 lakh Cr for these two subsidies which was less than Rs 1.88 lakh Cr allocated in 2014-15 in Budget Estimates, the first full Budget of Modi government.
In fact, since coming to power, the new NDA government has been steadily slashing allotments for food and fertilizer subsidies. In 2014-15 it allocated 11.35% of the Union Budget for these subsidies but by 2020-21 the total allocation had been reduced to 6.14%.
The farm agitation was mainly sparked off by these circumstances: the government was reducing subsidies to farmers while their input costs were increasing steadily. The three Farm Bills by opening up the sector to contract farming, competitive market pricing and shutting down the government procurement centers or Mandis, were a red flag to already burdened farming community, especially in Punjab, Haryana and Western UP, which account for nearly two-thirds of the subsidy recipients.
Now comes the harder part. In 2020-21 the government increased its subsidy bill by almost 200% to battle the Pandemic hit economy. The two subsidies were allotted Rs 5.56 lakh Cr in the revised estimates of the budget which was more than 16% of the total Budget allocations. But the next year in 2021-22 it cut down the subsidy bill by 42% to Rs 3.22 lakh Cr for which the revised estimates will be presented in the next Budget on February 1. It was more than 9.25% of the total budget allocations. Interestingly, the post pandemic budget amount remained the same as the government revenue had taken a massive hit.
For this year, the government was working under presumption that its subsidy will reduce as the farm produce will go the open market and the need for food subsidy allocation will decline. Keeping this in mind, the government wrote off all the unpaid debts of the Food Corporation of India which is the procuring agency for food subsidy and ensuring payments to the farmers. Similarly, it also paid of its outstanding amounts to the fertilizer companies.
The dilemma N. Sitharaman faces now is to either cut down the subsidy bill further to balance her books and earn the wrath of the farmers emboldened by a recent victory or face a bigger deficit in the budget at a time when the economy is not out of the woods. Both are tough choices. Especially when in the two large states - Punjab and Uttar Pradesh – Minimum Support Price and Food and Fertilizer subsidies are huge election issues.
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