Direct cash transfer can reduce food, fert subsidy by Rs 60k: study

Government subsidies on food and fertiliser can be pruned by Rs 60,000 crore in 2013-14 through direct cash transfer system and that will help control huge fiscal deficit as well as food inflation, says a paper.

Noting that policies to rein-in food inflation will foremost require winding-down the fiscal deficit, the paper has suggested that this can done by pruning revenue deficit—particularly subsidies and non-investment expenditures.

The fiscal deficit has gone above 8% of GDP for Centre and States combined, which is way beyond the guidelines laid out in the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, said the discussion paper co-authored by CACP chief Ashok Gulati.

The Commission for Agricultural Costs and Prices (CACP) is a statutory body under the Agriculture Ministry which advises the government on price policy for major farm commodities.

Gulati, in his personal capacity, said in the discussion paper: "The big components of fiscal deficit at the Centre are the subsidies on fuel, food, and fertilisers. And at the state level, it is power subsidy... Calculations show that direct cash transfer of food and fertiliser subsidies to targeted beneficiaries has potential to save almost Rs 60,000 crores."

However, this would require "political courage" as well as innovative ways to implement direct cash transfers to targeted beneficiaries through Aadhaar, he said.

Also, the pricing of fuel, food, fertiliser and power need to be rationalised for their efficient usage and also to contain the subsidy bills within manageable limits, he added.

For the just ended 2012-13 fiscal, food and fertiliser subsidy is expected to have increased to Rs 1,50,000 crore.

Gulati said in the paper: "By liquidating excessive grain stocks in the domestic market or through exports, massive savings of non-productive expenditures can be realised."

The government's foodgrains stock may cross 90 million tonne in July 2013. "Even if one wants to keep 40 million tonne of reserves in July, liquidating the remaining 50 million tonne can bring approximately Rs 80,000-100,000 crore back to the exchequer," the paper said.

And with this much grain in the market, food inflation will certainly come down, it said, adding that else, the very cost of carrying this extra stocks alone will be more than Rs 10,000 crore each year.

On rising farm wages causing food inflation, the paper said: "The way forward is not to stall this increase but to complement this increase with increased productivity."

To achieve higher labour productivity, farm mechanisation will have to be given priority and custom hiring of farm machines will have to be promoted through farmer organisations panchayats.

To reduce impact of global food inflation on domestic prices, the paper suggested, the spike in local food prices can be moderated by an active and variable tariff structure rather than outright ban on exports or imports.