India: Centre looks to trim subsidy bill next fiscal

  • The government is looking to trim its overall subsidy bill in 2022-23, and is likely to peg food and fertiliser subsidies at about INR2.6tr and INR900bn, respectively, in the upcoming budget, lower than the revised estimates for FY22.
  • Total subsidy bill for the current fiscal is likely to be around INR5.35tr-INR5.45tr and the government is keen to lower it next financial year, officials said.
  • The fiscal deficit for FY23 is likely to be pegged at 6.5% of the gross domestic product (GDP) against 6.8% of GDP budgeted for FY22, in line with the glide path announced in the last budget, they said.
  • “Subsidy on food and fertilisers will be in sync with our fiscal goals.” one of the officials said.
  • Food subsidy bill for the current financial year is likely to be about INR3.9tr in the revised estimates, higher than the budgeted INR2.43tr, but lower than INR4.22tr in FY21.
  • Food subsidy in FY22 will be higher than the budgeted due to the extension of scheme for the distribution of free food grains under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) until Mar 22 due to the Covid-19 pandemic.
  • Aggregate cost of the PMGKAY for FY22 is estimated at INR1.47tr, officials said. The government had provisioned Rs 79,530 crore for the fertiliser subsidy for FY22 in the budget.
  • It, however, had to provide additional funds twice due to increase in prices of fertiliser and supply side disruptions, which is expected to almost double the subsidy bill to INR1.41tr. Officials in the finance ministry said the allocation towards fertiliser subsidy for FY23 will be lower than the revised estimates.
  • The government had kickstarted rationalisation of the petroleum subsidy in FY22 budget, cutting it from INR390.6bn in 2020-21 to INR140.7bn. An official from the finance ministry said the actual spending is likely to be less than one third for this year. It will be brought down further in FY23, the person said.

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