Budget 2018: Govt's subsidy burden to go up by 10% to Rs 2.93 trillion

The central government’s subsidy burden is expected to rise by about 10 per cent to Rs 2.93 trillion in 2018-19, primarily due to a 21 per cent increase in food subsidy. Fertiliser subsidy is expected to rise by eight per cent and petroleum subsidy only marginally. Interest subsidy is to go down by 11 per cent to Rs 209.2 billion.

There will be a 35 per cent scale-up in expenditure on account of the subsidy requirement under the National Food Security Act. A provision of Rs 1.38 trillion has been made; the current financial year is likely to end with Rs 1.02 trillion. Overall, the food subsidy is estimated to shoot up to Rs 1.69 trillion, from the Revised Estimates of Rs 1.4 trillion in the current year. In 2016-17, the government spent Rs 1.1 trillion on this. 

Finance Minister Arun Jaitley extended a liberal Minimum Support Price (MSP) scheme to summer (kharif) crops. He said farmers would be ensured at least 50 per cent more than the cost of their produce. “We have decided to implement this as a principle…to keep MSP for all unannounced crops of kharif at least at one and half times of their production cost,” he said.

Subsidy on account of the Price Stabilisation Fund, however, has been halved to Rs 15 billion in 2018-19. The current year is expected to close with Rs 35 billion, down by Rs 34 billion over 2016-17. The fund maintains a buffer stock of pulses, to ensure sufficient availability in the market.

The fertiliser subsidy is projected to rise eight per cent to Rs 701 billion in 2018-19, as against Rs 649.7 billion in the Revised Estimates for 2017-18.

The government is keeping the petroleum subsidy at a conservative Rs 249.3 billion, marginally higher than the Rs 244.6 billion estimated for the current year. Jaitley has surprisingly projected a cut in budgeted subsidy for both cooking gas and kerosene in the current year, despite the rally in oil prices. He’d budgeted it at Rs 250 billion at the beginning of FY18. 

“The subsidy provided could fall short by around Rs 110 billion if crude oil prices average $70 a barrel and the exchange range is Rs 65 to a dollar for 2018-19. The amount, however, is manageable and will not materially impact the liquidity and profitability of oil marketing companies and upstream companies,” said K Ravichandran, senior vice-president at ratings agency ICRA. The Indian crude oil basket averaged $54 a barrel for the nine months ended December 31. It touched $66.4 at Wednesday’s close.