Budget FY23 to fall short on reforms

The Centre’s plan to save on fertiliser subsidy through direct benefit transfer (DBT) is most likely to be put on the back burner and key welfare schemes like PM-Kisan may see higher allocations, according to the sources. The system of minimum support price (MSP) for farm produce may be reinforced too.

Prolonged protests by farmers forcing the withdrawal of three laws and and the impending assembly elections in five states including the politically decisive Uttar Pradesh may deprive the Budget 2022-23 of any major reform content, even as it will likely hone in on social-sector issues and schemes, people familiar with the relevant discussions in the government told FE.

The Centre’s plan to save on fertiliser subsidy through direct benefit transfer (DBT) is most likely to be put on the back burner and key welfare schemes like PM-Kisan may see higher allocations, according to the sources. The system of minimum support price (MSP) for farm produce may be reinforced too.

New social-sector initiatives may also be forthcoming, including a pan-India scheme to provide cooked food to the needy at highly subsidised rates, the sources added.

However, the government would still refrain from taking expenditure commitments that could prove too burdensome on the exchequer for a long period, like a universal basic income scheme, since it is fully conscious of the need to boost capital expenditure and would want to return quickly to the path of credible fiscal consolidation.

A senior official told FE on the condition of anonymity that directions have been issued to his division to “give attention to socioeconomic issues and schemes,” as preparations commenced for the Budget, which to be presented in Parliament on February 1.

“Appetite for reforms is much less in the government now as it does not want to antagonise the electrorate. DBT-fertiliser can wait,” another official said.
“Small farmers will appreciate a scheme which will ensure they get fertiliser subsidy duly in their bank accounts. But I think that the government may not touch this issue right now,” said PK Joshi, agricultural economist and a member of the SC-appointed panel on the recently repealed farm laws.

Even though the government has successfully managed to privatise ailing national carrier Air India this year, it has slowed down on privatisation of fuel retailer-cum-refiner BPCL despite being at an advanced stage of the process (the financial bids are being delayed). Similarly, its FY22 Budget announcement to privatise two banks has not been seriously followed through and is unlikely to be executed in the current financial year. The implementation of four labour codes – which, along with steps to boost labour welfare and rights, contain provisions to ease labour market rigidities for the benefit of industry– is also hanging in balance due to the government’s ambivalence. The labour reforms require support of the state governments and the larger political spectrum for their implementation.

The rise in the global prices has inflated budgetary fertiliser subsidy to an all time high of Rs 1.43 lakh crore in FY22 from Rs 1.27 lakh crore (thanks partly to clearance of Rs 65,000 crore arrears) in FY21 and Rs 81,124 crore in FY20. The surge in fertiliser subsidy has been triggered by rising global prices with urea (most commonly used fertiliser) prices tripling to about $990/tonne while di-ammonium phosphate (DAP) prices have more than doubled to $700-800/tonne compared with one-and-half year ago

Prodded by the Supreme Court, the Centre is also likely to frame a national level scheme to provide cooked food to the poor in both urban and rural areas at Rs 10/plate. The proposed scheme will likely keep food subsidy at an elevated level.

On November 24, the Centre extended the free ration scheme – Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) – from May-November till the end of the current fiscal. PMGKAY will cost Rs 1.47 lakh crore, taking the total food subsidies including those covered under the National Food Securities Act, to about Rs 3.3 lakh crore in FY22. The food subsidy spend in FY21 was Rs 5.25 lakh crore including Rs 1.34 lakh crore for the free grains scheme.

A development that could stand the government’s expenditure managers in good stead is that the burden of fuel subsidy has come down to very low levels. While petrol and diesel are decontrolled, since June 2020, the government hasn’t been depositing the subsidy on LPG or cooking gas in the bank accounts of target beneficiaries.

However, the government’s outreach to the farmers under the flagship PM-Kisan scheme, launched in February 2019, is estimated to cost Rs 65,000 crore in FY22, nearly the same as in FY21. The cost of the scheme may rise if the government expands its scope to cover sharecroppers or increases the annual payout to each farmer from Rs 6,000 now (in three equal installments).

The government is keen to roll out DBT for most of the schemes to plug pilferage. Transfer of assorted subsidies and sops to the beneficiaries through the DBT resulted in Rs 2.23 lakh crore cumulative savings to the Centre between FY15 and FY21.