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Food subsidy rises to Rs. 32,667 cr.

NEW DELHI: The food subsidy has jumped from Rs. 25,696.20 crore in 2007-08 to Rs. 32,667 crore in the 2008-09 budget. This in a year when there has been large-scale import of wheat and the widening of gap between the minimum support price of food crops and the central issue price of Public Distribution System commodities.

The budget proposals do not outline any measures for containing inflation in the essential commodities and largely left the food sector untouched but for the provision of higher subsidies.

Finance Minister P. Chidambaram has said strengthening the PDS will mean adequate supplies, reasonable subsidies and efficient delivery of the subsidised food. Haryana and the Union Territory of Chandigarh will introduce, on a pilot basis, a smart-card system to deliver foodgrains under the PDS.

The subsidy provision for the maintenance of buffer stock on sugar has been enhanced from Rs. 35 crore in 2007-08 to Rs. 350 crore in 2008-09. The subsidy provision for interest subvention to cooperative sugar mills through the National Bank for Agriculture and Rural Development has been enhanced from Rs. 30 crore to Rs. 300 crore.

K. T. Jagannathan writes from Chennai:

Even as the Finance Minister P. Chidambaram has given significant attention to the farm sector in his budget for 2008-09 by announcing the biggest-ever waiver of loans to farmers, the fertilizer industry has demanded quicker resolution of some critical issues affecting it.

The budget has made a total provision of Rs. 30,800 crore for payment of subsidy for urea (Rs. 20,000 crore) and de-controlled fertilizers (Rs. 10,800 crore).

A. Vellayan, Vice-Chairman, Murugappa Group, however, estimated that a subsidy allocation of Rs. 80,000 crore would be required for the fertilizer sector (comprising Rs. 40,000 crore for urea and Rs. 30,000 crore for de-controlled fertilizers and another Rs. 10,000 crore for carry-over from last year) for 2008-09.

Given a provision of Rs. 30,800 crore in the budget, he reckoned a shortfall in subsidy provision in cash terms to the tune of Rs. 50,000 crore for 2008-09. “It is not clear whether this quantum is expected to be paid in bonds and, if so, what is the maxim by which the Government can ensure that those bonds have a market liquidity so that domestic manufacturers can convert these bonds in order to pay for the raw material, which are in short supply world over,” Mr. Vellayan said. In this context, he pointed out that the Government paid cash for imported fertilizers and issued bonds to the domestic fertilizer industry. This had put the local manufacturers at a big disadvantage, he said.

Mr. Vellayan said the Government had embarked on a large-scale import of urea and DAP, which had driven prices up in the global markets. In the absence of a long-term policy, domestic manufacturers were unable to tie-up their raw materials. Against this backdrop, he urged the Government to announce a long-term policy for urea and phosphatics and facilitate the domestic manufacturers to tie-up for import of raw materials.

“Unless the above sequence of events is followed, it will be very damaging for the domestic fertilizer industry,” he said.

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