Interim Budget Provides Less For Subsidies in '24-25 Even As Spending Tops Budget Targets This Year

The fertiliser subsidy allocation for FY 2024-25 has been lowered by 13 per cent to Rs 1.64 lakh crore from Rs 1.75 lakh crore allocated for the same in 2023-2024. The revised estimate for 2023-24 had taken it to Rs 1.89 lakh crore.

The lowering of fertiliser subsidy in 2024-25 is being attributed to an expected drop in international prices, especially urea and muriate of potash. The government has indicated that though there is a spike in prices of select fertilizer items, it is expected the prices may fall and the current allocation may be adequate. Experts said easing global fuel prices have forced the government to peg the subsidy lower.

Sunil Sinha, Principal Economist, India Ratings, said: “The price of fertilisers is directly related to crude price in the international market, the government may have estimated subsidy expenses on the basis of the current ongoing crude price which seems similar as last year.”

Urea comprises 55-65 per cent of total fertiliser consumption and is imported as well as produced in the country. The urea subsidy scheme ensures constant availability of urea to farmers at the same price of Rs 242 per 45-kg bag when the bag's actual cost is around Rs 2,200.

Why Was Fertiliser Subsidy Hiked in 2023-24

In mid-2023, the prices of fertilisers rose sharply worldwide due to the Russia-Ukraine crisis and the Israel war on Hamas added to the ongoing tension. To worsen it further, the Houthi attacks in the Red Sea have made fertiliser supply erratic and driving prices up.

In August 2023, Russian companies stopped offering discounted prices to India for fertilisers, such as di-ammonium phosphate (DAP), due to tightening global supplies after becoming the biggest suppliers last year.

Further, China placed some curbs on export of fertilisers to maintain supply in its domestic markets. And this lifted prices on select fertilisers, especially DAP, by 26 per cent since July last year. To make up for the higher import cost, the subsidy was hiked in last year's budget.

Though the fertiliser subsidy has been pared in the Interim Budget, challenges on the global level remain and could force revision of subsidy allocations. Such an opportunity may be utilised in the Budget, likely in July, once the new government is in place after the Lok Sabha elections.

Food Subsidy Trimmed

Food subsidy is the other subsidy to have been cut marginally. The Interim Budget FY 2024-25 put India's food subsidy bill at Rs 2.05 lakh crore. This is 3.3 percent lower than the revised estimate for 2023-24.

The 2023-2024 budget had earmarked Rs 1.97 lakh crore for food subsidy. The revised estimate has put it at Rs 2.12 lakh crore for 23-24. The increase can be attributed to the extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) by five more years from January 1, 2024. The programme provides free food grains to 81 crore people. Here, the central government procures rice and wheat from farmers at minimum support price and then supplies them free to the beneficiaries.

Also the government had got the Lok Sabha's approval to spend an additional Rs 58,378 crore in the last Winter Session towards the first batch of supplementary demands for grants. Out of this, another Rs 4,807 crore will be spent as subsidy to states on decentralized procurement of food grains under PMGKAY.

An official estimate puts the five-year food subsidy bill for the distribution of food grains under PMGKAY at Rs 11.80 lakh crore.