Apr-Oct subsidies at 71% of full-year target, against 78% last year

Those on food, fertilisers and fuel account for over 95% of all central subsidies

Though low global crude oil prices have led to hope of lower subsidies this year and, consequently, Finance Minister Arun Jaitley achieving the 2014-15 fiscal deficit target of 4.1 per cent of gross domestic product, latest data on major subsidies show unless food and fertiliser subsidies are reined in, the Centre might struggle to meet the target.

For April-October, major subsidies (on food, fuel and fertilisers) stood at 71 per cent of 2014-15 Budget estimates, compared with 78 per cent for the corresponding period last year. However, in absolute terms, the subsidies, which together account for about 95 per cent of all central subsidies, were Rs 1.78 lakh crore, against Rs 1.73 lakh crore in April-October 2013.

This was despite fuel subsidy falling to Rs 46,291.7 crore from Rs 54,550 crore in April-October 2013.

While food subsidies rose to Rs 77,515 crore in April-October this year compared to Rs 68,887 crore in the year-ago period, fertiliser subsidies increased from Rs 49,700 crore to Rs 54,300 crore.

For 2014-15, Jaitley had budgeted major subsidies at Rs 2.51 lakh crore, with food, fuel and fertiliser subsidies pegged at Rs 1.15 lakh crore, Rs 63,427 crore, and Rs 72,970.30 crore, respectively. In 2013-14, the Centre had projected these subsidies at Rs 2.21 lakh crore. However, these stood Rs 1.58 lakh crore for the first six months and Rs 2.45 lakh crore for the entire year.

“There is not much we can do to rein in food and fertiliser subsidies, at least this year,” conceded a senior finance ministry official. “You are committed to the spending, especially with food subsidies. Even if the food security Act has not been ramped up, you have to make the payments.”

The official, however, added this year, there was a “spillover’ from last financial year’s subsidies. Of the budgeted food subsidy food subsidy estimate of Rs 1.15 lakh crore, Rs 30,000-40,000 crore is said to be carried forward from 2013-14.

“The impact of declining oil prices is yet to show on fertiliser subsidies,” said N R Bhanumurthy of the National Institute of Public Finance and Policy. He said as gas prices declined due to global crude oil prices standing at about $70 a barrel, subsidy to fertiliser companies could be contained. “There is a chance these companies bought natural gas on forward contracts to dissipate any volatility in the market,” he said.

On food subsidies, however, Bhanumurthy said structural changes were needed in the way Food Corporation of India (FCI) procured and distributed food grains. “The only way you can reduce the food subsidy burden over time is to revamp the way FCI functions.”

For the April-October period, the Centre’s fiscal deficit stood at almost 90 per cent of the 2014-15 target, against 84.4 per cent in the year-ago period.

For April-October this year, net tax revenue stood at Rs 3.69 lakh crore, only 37.7 per cent of the 2014-15 Budget estimate of Rs 9.77 lakh crore. To meet the full-year target, direct and indirect tax revenue collection has to be doubled in the second half of this financial year.

This year, the government is likely to miss the revenue target again. As such, the Centre might find it difficult to meet its fiscal deficit target unless proceeds come from disinvestment and spectrum sales, as well as special dividend, are high.