Food subsidy bill for 2007-08 set to inch up

NEW DELHI: If the fertiliser subsidy bill estimate of Rs 31,000 crore plus for 2008-09 against the DoF’s real projections of Rs 50,000 crore for 07-08 sounds forbidding, here’s food for more worries: the food subsidy bill for 2007-08 (RE) is set to inch up to Rs 30,000 crore plus.

The FCI’s food bill estimate earlier totalled Rs 27,000 crore but the grain procurement major has since redone its expenditure account to Rs 31,000 crore-odd. In all, the current subsidy projections would be a substantial Rs 4,500 crore-odd more than the BE of Rs 25,696.20 crore for 07-08 and Rs 5,700 crore-odd more than the 06-07 RE of Rs 24,203.92 crore.

In 2006-07, the government issued special bonds worth Rs 16,200 crore (at an average coupon rate of 8.15%) to the Food Corporation of India (FCI) to settle dues from the RD and the Women and Child Welfare Deparment (towards grain buys for the Sampoorna Grameen Rozgar Yojana and for mid-day meals).

In all, the dues totalled Rs 17,700 crore although the principal amount due was only Rs 10,200 crore. It was subsequently estimated that the annual average provision for RD grain dues, after settling the remaining RD dues in bonds, would not exceed Rs 3,000 crore.

The RE for 2007-08 on food subsidy, therefore, would include dues of about Rs 3,000 crore in estimated annual average budgetary provisions to square up these dues to the FCI. It would also include the import bills for to 4 m tonne-odd of high-priced wheat imports. Global wheat prices now rule at around $330-360/tonne.

Significantly, phased wheat imports over a period of time at different ports in the country (Mundra, Kakinada etc) to serve the PDS and welfare needs of different states have not helped curtail the food subsidy bill this year.

In 2006-07, the food ministry had maintained that timely imports of relatively lower priced wheat imports (global supply and demand was not as tight, impacting directly on prices) had actually cut down the bill by Rs 1,000 crore-odd. That, since the FCI did not have to spend on long-term storage and transportation of more expensive domestic wheat.

In fiscal 07-08, although domestic wheat prices stayed by and large steady at Rs 1,100-1,300/tonne compared to much higher global prices, the government chose not to buy from wheat farmers in the country, on the contention that the FCI doing so would have distorted domestic price significanly for consumers.

Comparitively, sources pointed out that the actual cost of wheat per tonne has worked out to a high Rs 1,600/quintal compared to only Rs 852/qtl in 01-02 and Rs 1,070/qtn in 06-07 (BE) to the FCI. There is a silver lining to the food subsidy bill story, however, although the governemnt has still to issue bonds to the FCI to the tune of Rs 1,500 crore.

Unlike indications for the fertiliser sector, there may not be massive off-budget accounting in the food sector in 08-09. Finance minister P Chidambaram promised some realistic budgeting on this front for 2008-09 last year. “It could have upset Budget calculations had we insisted that provisions for the dues be made from 2007-08. But from 08-09 onwards, the Budget will make provisions for the dues to the FCI from RD. Since these will be primarily on account of grain supplied to the SGRY, dues are unlikely to exceed Rs 3,000 crore,” sources said.

What could be additional relief for the FM is the fact that payment in grains as an option for the NREGP has been closed ever since 05-06, when the Centre’s foodgrain crunch in welfare and PDS programmes first became apparent. So, despite the NREGP covering the entire country, there is likely to be nil impact on the government’s food budget.