Government hopes to cut soaring fuel, fertiliser subsidy bills

17 February 2009

Stand-in finance minister Pranab Mukherjee claims that the government is now in a position to pare down subsidy bills, thanks to lower global prices for fertiliser inputs as well as oil. But this will require exceptional fiscal prudence, as the subsidy bills for 2008-09 have overshot the budgeted levels by a wide margin.

For example, the centre's fertiliser subsidy bill for the current fiscal has overshot budgeted levels by Rs65,000 crore, or 80 per cent, which sets a new record for the country.

For 2008-09, the government had originally provided for a sum of Rs30,986.36 crore as subsidy payable to fertiliser companies in exchange for their selling nutrients to farmers at prices below the production or import costs (after factoring in a notional return over costs).

The revised estimates, however, show the total payment at Rs75,848.75 crore. The major portion of this is against sale of decontrolled fertilisers (Rs48,351.10 crore).

This includes the technically off-budget 'special securities' of Rs20,000 crore issued to fertiliser companies. These bonds – Rs17,000 crore against decontrolled fertilisers and Rs3,000 crore towards indigenous urea – do not involve any explicit cash outgo. The companies receiving the bonds can sell them to banks to meet their liquidity requirements.

Overall, the revised estimates for 2008-09 show the government pegging the total outflow on various subsidies at Rs129,243 crore, nearly doubling from the actual payout of Rs70,926 crore in 2007-08.