Fertilising change

The government's ability to use the UID system is the key

If you’re looking for instances of just how different this year’s Budget is, a good place to look at is the section on subsidies — for the first time in a decade, subsidies will be lower than in the previous years. At least that is the plan. Total subsidies in 2010-11 are to fall around 12 per cent to Rs 116,224 crore and, within this, the largest planned reduction is in the case of fertiliser subsidies, targeted to fall from Rs 52,980 crore in 2009-10 to Rs 49,981 crore in 2010-11. Just how wrong this could go, of course, is best exemplified by what happened just two years ago — after budgeting for Rs 30,986 crore in 2008-09, the actual fertiliser subsidy in the year was around 2.5 times higher. Food subsidies in that year also went horribly wrong and the overall subsidy payout on all heads was around 80 per cent more than budgeted for. So, the possibility of higher global prices cannot be ruled out and it could play havoc with the budget. What makes Finance Minister Pranab Mukherjee confident that he’s on top of things is the move to nutrient-based subsidies and the hike in urea prices despite the objections of the fertiliser minister — this is important, but keep in mind the price hike of 10 per cent came after a period of eight years. The real savings, of course, will accrue from the government moving, as the finance minister said in his Budget, towards direct transfer of subsidies to farmers — given the government’s reluctance to take tough decisions, such as on petroleum pricing, its ability to use the Unique ID (UID) system for cash transfers is an open question. The increase in allocation for the UID project, though, does suggest it hasn’t lost its commitment to the idea.

The other worry relates to the Right to Food Bill, the draft of which, the finance minister has said, will be available for public discussion soon. The broad contours of it, of course, are known and if the government sticks to just giving subsidised food to the poor, the bill could actually decline. Of course, there are various definitions of the poor, ranging from the 6.52 crore family one by the National Sample Survey (the official one) to the 8.32 crore family one by Suresh Tendulkar and the infamous 77 per cent Indians are poor one by Arjun Sengupta (16.75 crore families) — and there are Below Poverty Line cards (10.86 crore) issued by various state governments. Estimates of what the subsidy would cost range from Rs 28,890 crore to Rs 90,644 crore, and that’s without taking into account the rampant leakages from the system. It is also an open question as to whether the proposal to lower the ration shop entitlement from the current 35 kg per family per month to 25 kg will be accepted. It’s also difficult to see how in an entitlement-society, it will be possible to not give subsidised food to the non-poor — this decision could result in a saving/spending of around Rs 15,000 crore. In other words, the government’s ability to keep subsidies in check requires a lot of political will, the kind it hasn’t demonstrated for a long time.